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RES619
Revenue Laws
Lecture 1
Introduction to the Malaysian
Revenue Law

Definition of Revenue
• Revenue is the money received from taxation,
fees, fines, inter-governmental grants or
transfers, securities sales, mineral rights and
resource rights, as well as any sales that are
made.

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Public Revenue
• The income of the government through all sources is called public income or
public revenue. In a modern welfare state, public revenue is of two types, tax
revenue and non-tax revenue.
• Tax Revenue:
– It is the most important and major source of public revenue.
– Government may require the members of the community to contribute to the support of
governmental functions through the payment of taxes.
– An individual has no right to directly demand social services in return to his payment of tax
nor has he any other choice except to pay the tax when it is levied on him.
– Taxes, in general, serve both functions of a revenue system: provide funds, and reduce private
consumption and investment.
• Non-Tax Revenue:
– is derived from public undertakings called ‘Prices’ and other miscellaneous receipts.
– It also raises loans, short-term and long-term, to augment its revenues.
– Other minor revenue sources are fees, special assessment, fines, forfeitures and escheats,
tributes and indemnities, gifts and grants.

Tax Revenue
• A fund raised through the various taxes is
referred to as tax revenue.
• Taxes are compulsory contributions imposed
by the government on its citizens to meet its
general expenses incurred for the common
good, without any corresponding benefits to
the tax payer.

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The Features of Taxes

• A tax is a compulsory payment to be paid by the citizens who are
liable to pay it. Hence, refusal to pay a tax is a punishable offence.
• There is no direct, quid pro quo between the tax-payers and the
public authority. In other words, the tax payer cannot claim
reciprocal benefits against the taxes paid. However, as Seligman
points out, the state has to do something for the community as a
whole for what the tax payers have contributed in the form of
taxes.
• A tax is levied to meet public spending incurred by the government
in the general interest of the nation. It is a payment for an indirect
service to be made by the government to the community as a
whole.
• A tax is payable regularly and periodically as determined by the
taxing authority.

Definition of Tax
• Taxes are public revenues which are arising
from the obligation imposed by the state to
the citizens and the companies, obligatorily to
separate part from their own income or
property for the state’s needs fulfillment.
• The basic function is fiscal, but very often the
taxes are used for achieving some economic
and social goals.

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Basic elements of every tax system

• Subject, object of taxation :
– revenues, consumption and the property.
– Determination of the subject or the object of taxation
– i.e. which taxes will be paid at the same time means determination of
the types of taxes.
• Taxpayer
– Tax obligation holders are the companies and the citizens.
– Also it should be taken into consideration that there is a difference
between the companies according to their size.
• Tax base
– The tax base is that size and amount from the subject of taxation on
which the tax is calculated.
– For example, the Profit Tax is paid on the realized profit during the
year and the Personal Income Tax is paid on all income which the
citizen has on all bases during one year.

Basic elements of every tax system

• Tax rate
– The tax rate is the percentage, the part that should be paid in
the form of tax from the determined tax rate.
– If the tax rate is determined on 10%, it means that such
percentage from the total profit which is taxed should be paid as
a tax to the state.
– Two types of tax rates are mostly applied such as Proportional
and Progressive
– Paying tax with proportional rate means that the tax should be
paid always with the same rate, no matter of the amount of the
property or the income.
– At the progressive rate, on a higher amount of property, income
or profit, it is foreseen higher rate and on the smaller profit it is
foreseen lower rate.

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The History of Malaysian

Revenue Law

Summary of Taxation History in

Malaysia
MALAY TRADITIONAL FEUDAL PERIOD
A chief (Penghulu) appointed by Sultan responsible to collect revenues from the peoples

BRITISH COLONIALIZATION PERIOD

1870s : British tries to took over the traditional administrative from the Native Rulers due to the concept of
separation of powers between the traditional Malay Rulers and the British Protectorates Government.
1910s : British government attempts to introduced income tax but this attempted was aborted due to strong local
opposition.
1917-1940 : Early stages of introducing income tax but the British Colonial Government used a term of “War
Taxes”.
1940-1945 : Japanese implemented income tax as known as “War Taxes” in order to protect Malaya and Singapore
from counter-attack by the Allied Troops.
1945-1967 : Four British Colonies such as Federation of Malaya, Colony of Singapore, Colony of Sabah and
Colony of Sarawak had its own income tax laws and ordinances.

MODERN PERIOD
All these ordinances applicable in four territories until it’s were repealed and replaced with the Income Tax Act
1967. State of Singapore was separated from the Federation of Malaysia and become a new nation known as
Republic of Singapore on 9 August 1965.

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Historical Background
• Prior to the introduction of British rule, traditionally the largest
political unit in the peninsular was the State, each ruled by a Sultan.
• In addition, a chief, whose main source of power was the freedom
to raise revenue, ruled each district.
• With British colonial rule, the British took over the functions that
were previously performed by the district chiefs, including the
collection of revenue.
• Before attempts were made to introduce a tax on income in the
early 1910s, authorities in the Straits Settlements had to rely on
excise revenue, raised almost entirely from the sale of opium, arak
toddy and other commodities.
• Gambling farms and the opium monopoly were the major sources
of revenue throughout the 19th century.
• Stamp duties were introduced in 1863, but were abolished in 1867.

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Historical Background
• In FMS, the principal sources of revenue were port duties and river
tolls, export and import duties and excise duties. The bulk of
revenue came from tin export duties and import duties on opium,
the preparation of cooked opium, sale of spirits, running of spirits,
gambling and pawn shops.
• In uFMS, the principal sources of revenue were import duties and
the sale of opium and land.
• In Sarawak, until WW2 most revenue came from excise on opium
farms and on spirits, royalties on minerals and poll taxes.
• In Sabah, under the administration of NBC was managed avowedly
for profits. Taxes were minimal and based on the production of
minerals, extraction of forest products and plantation crops such as
tobacco and rubber. Tariffs were imposed on imports such as on
imported rice in 1885 but were lifted in 1903.

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Historical Background
• A bill was introduced in the Straits Settlements Legislative Council
to impose a tax on income, effective from 1912 but was withdrawn.
During WW1, the British Colonial Government was successful in
introducing income tax in the Straits Settlements but not in the
FMS.
• In 1916, a proposal was put forward to supplement the
contributions towards the Imperial War Expenditure by means of an
income tax. This led to the passing of a Bill which became
Ordinance No. 8 of 1917 in order to impose a tax based on income
with effective from 1st January 1917.
• For the following two years, taxes on income were levied under the
War Tax Ordinance of 1918 and that for 1919. From 1920 to 1922,
the “war tax” was replaced with an income tax. The public
protested and given that the war had ended, income tax was
abolished and did not reapprear until 1940.

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Historical Background
• In 1940, two bills modelled on the War Tax Ordinance 1919
was passed, one for the Straits Settlements and the other
for the FMS with the objective to defray war expenditure.
• The Bills allowed for the imposition of a tax on profits and
income for only one year effective from 1 January 1941.
With the same objective, similar Bills were passed in
December 1941 for the imposition of income tax in 1942.
• Under the Japanese occupation during WW2, the military
regime did not “introduce” any income tax. However, a
Joint Income Tax Organization was set up to recover arrears
for the “war taxes” that were assessed in 1941 and to
collect the remaining unassessed taxes for 1941.

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Historical Background
• In 1946, after the Japanese surrendered in August 1945, the British
Colonial Governments in Malaya and Singapore set up a Selected
Committee to consider the possibility of re-introducing a tax on
income in the two respective colonial territories. The governments
of the two territories appointed Mr. R. B. Heasman as their advisor.
• In February 1948, the governments of Malaya and Singapore
accepted the Heasman Report which led to the re-introducing of
income tax in Malaya and Singapore respectively by passing the
Income Tax Ordinance No. 48 of 1947 and the Income Tax
Ordinance No. 39 of 1947. Both ordinances that came into effect on
1 January 1948 were based on the Colonial Territories Model
Income Tax Ordinance 1922.
• In Sabah and Sarawak, income taxes were introduced respectively
with the passing of the Income Tax Ordinance 1956 and Inland
Revenue Ordinance 1960.

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Historical Background
• On 16 September 1963, three former British Colonies consisting Colony of
Singapore, Colony of Sabah, Colony of Sarawak and Independence
Federation of Malaya were merged into a single nation state known as the
Federation of Malaysia.
• From the mid 1950s until the formation of Federation of Malaysia, tax
policies and amendments to the tax ordinances in four territories took
different but not very diverse paths.
• Under the Federation of Malaysia Constitution, income tax is a matter for
the Federal Government but for a brief period, Federation of Malaysia was
governed by four different tax ordinances. Thus, a processes to harmonise
the taxation systems in the four territories was put into motion, with the
introduction the Modification of Laws (Income Tax) Order 1964.
• Although Singapore was separated from the Federation of Malaysia on 9
August 1965, the policy towards harmonization of the taxation systems
continued in the remaining three territories of the Federation of Malaysia.

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The History of Property Rates

• British introduced the first assessment rate in Penang
since 1790’s after the occupation of Penang Island from
the Sultanate of Kedah.
• Purposes : to manage and maintain the urban facilities
and amenities provided by the English East Indies
Company (EEC).
• The first valuation officers brought from England to
serve as contract basis to determine the holdings value
in Georgetown.
• The first sanitary board was established as the local
authority to collect and manage the urban facilities and
amenities.

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The History of Stamp Duty

• The British Administrator introduced and
implemented the first stamp duty provisions after
the new Federated Malay States established in
1896.
• The uniform law of stamp duty was came to
enforcement in 1949 when the Stamp Ordinance
1949 gazette by the British Administrator.
• The Stamp Ordinance was reviewed in 1989 and
the modified and amended version of stamp duty
introduced with a new provisions known as the
Stamp Act 1949.

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The History of Real Property Gain Tax

• In order to prevent the speculation of Real Estate
Value due to the actively transacted, the
Malaysian Government was introduced the anti-
speculation law on property capital gain in 1973
which known as the Real Property Speculation
Tax 1973.
• In 1976, the existing law was reviewed and
deleted when the new provision known as the
Real Property Gain Tax 1976 was introduced to
replaced the Real Property Speculation Tax 1973.

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The History of Income Tax

• British colonized the Malay States as early as in 1786.
• The Income Tax was the first tax introduced in 1947 by
the British Administration in Malaya under
enforcement of the Income Tax Ordinance 1947.
• In the States of Sabah and Sarawak, the Income Tax
Ordinance was introduced and implemented by the
British Authority in 1957 and 1961 respectively.
• Indirectly, Malaya, Sabah and Sarawak had their own
the Income Tax Ordinances .
• In order to standardization, in 1967, the Parliament
was introduced the Income Tax Act 1967 and applied to
all states in Malaysia effected from 1 January 1968.

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Administration

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Revenue Law
• Generally, the course only focusing the
following revenue laws :
– Property Rates : the Local Government Act 1976
– Real Estate Capital Gain : the Real Property Gain
Tax Act 1976
– Stamp Duty : the Stamp Act 1949
– Income Tax : the Income Tax Act 1967

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Local Authorities
• Local Governments or Local Authorities
administrate the enforcement and
implementation of Property Rates
(assessment).

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Lembaga Hasil Dalam Negeri

• The Inland Revenue Board (Lembaga Hasil
Dalam Negeri – LHDN) authorizes for the
following provisions :-
– Real Property Gain Tax
– Stamp Duty
– Income Tax

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The Importance of Tax Revenue

• As a government sources of income (Public
Revenue)
• Economy growth tools
• Redistribution tools of income and wealth

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Q & A Session

Thank You

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