CHAPTER 2

TAX ADMINISTRATION
Inland Revenue Board /
Lembaga Hasil Dalam Negeri
• The Inland Revenue Board of Malaysia (IRBM) is one of the main revenue collecting
agencies of the Ministry of Finance.
• IRBM was established in accordance with the Inland Revenue Board of Malaysia Act 1995
to give it more autonomy especially in financial and personnel management as well as to
improve the quality and effectiveness of tax administration.
• The Department of Inland Revenue Malaysia became a board on March 1, 1996, and is
now formally known as IRBM.
• The agency is responsible for the overall administration of direct taxes under the
following Acts :
• Income Tax Act 1967
• Petroleum (Income Tax) Act 1967
• Real Property Gains Tax Act 1976
• Promotion of Investments Act 1986
• Stamp Act 1949
• Labuan Business Activity Tax Act 1990
Functions of IRBM
a.To act as agent of the Government and to provide services in administering,
assessing, collecting and enforcing payment of income tax, petroleum income
tax, real property gains tax, estate duty, stamp duties and such other taxes as
may be agreed between the Government and the Board,
b.To advise the Government on matters relating to taxation and to liaise with
the appropriate Ministries and statutory bodies on such matters,
c.To participate in or outside Malaysia in respect of matters relating to taxation,
d.To perform such other functions as are conferred on the Board by any other
written law
e.May act as a collection agent for and on behalf of any body for the recovery
of loans due for repayment to that body under any written law.
Tax Assessment System
• An assessment is the process by which the provision of the Act is applied to the
affairs of a person to ascertain the proper amount of tax payable by the person.
• Malaysia has adopted an Official Assessment System (OAS) whereby taxpayers
were assessed by the tax authorities based on the tax returns filled by them. 
• In year 2001, the Malaysian Government has introduced a Self Assessment
System (SAS) in stages commencing with company category.
• The Self-Assessment System (SAS) where the taxpayer is responsible for
computing one’s own chargeable income and tax payable, as well as making
payments of any balance of tax due.
• Under SAS which is based on the concept of Pay, Self Assess and File
which individuals are required to:
• Pay : Monthly salary deductions are made for individuals having employment
income, or through instalments for individuals having business income.
• Self Assess : Taxpayers compute their own taxes.
• File : The Income Tax Return Form (ITRF) is submitted to the IRBM together
with the payment for the balance of the income tax payable to meet any
shortfall in the monthly payments or a claim for repayment if there is an
overpayment.
• The objective of SAS is to increase the collection of tax and
compliance level and in order to increase the tax compliance
voluntarily.
• Thus, LHDNM need to provide a simple method for taxpayers to
submit ITRF. To fulfil the said requirement, the Income Tax Act
1967 was amended to allow submission of ITRF be done
electronically.
• In this connection, e-Filing was introduced in the assessment
year 2001 for Company’s tax payers and year 2004 for
individual tax payers.
Types of Return Form
No.   Categories   Date  
Due
Return
Form
1 Resident individual with business source B 30 June of the following year
2 Resident individual without a business source BE 30 April of the following year
3 Partnership P 30 June of the following year
4 Non-resident individual M 30 April — no business income
30 June — with business income

5 Company   7 months from the date following

the close of the accounting period

6 Employer E 31 March of the following year

7 To deliver Form EA to employee EA By the last day of February of the

following year.
Monthly Tax Deduction (MTD)/
Potongan Cukai Bulanan(PCB)
• The MTD or PCB system is a mechanism in which employers deduct
monthly tax payments from the employment income of their
employees.
• This mechanism is designed to avoid the issues that come with
requiring payment of a large sum of income tax when the actual tax
amount has been determined.
Examples 1:
In 2010, Ah Chong, a single man with no children, earned a gross salary of
RM3,100/month. After deducting his EPF contribution of RM330/month to give his
MTD salary of RM2,759, his MTD is to be deducted from his salary by the company
is RM31/month.
Example 2:
In 2010, Aimi, a single woman with no children, earned a gross salary of
RM5,000/month. Her EPF contribution is RM550/month but under the 2010
tax rules only a maximum of RM500/month or RM6000/year can be used to
be deducted from gross salary so her MTD salary will be RM4,500/month.
Aimi’s MTD will then be calculated to be RM224/month.