Part 1:

Discuss the general concept of individual taxpayer. Describe and analyse the advantages
and disadvantages on the type of assessment.

General Concept of Individual Taxpayer

Tax is a contribution levied on a person, property or business for the support of the
government. [1] You can also define tax as a compulsary exaction of money by a public
authority for public purposes enforceable by law [2] or the process of raising money for the
purposes of the government by means of contributions from individual persons. [3]

An individual, whether tax resident or non-resident in Malaysia, will be taxed on any income
generated in or derived from Malaysia.

In Malaysia, an individual is liable for income tax if he or she fulfils any of the following
criteria: [4]
1. He or she has been resident in Malaysia for 182 days of the tax year
2. He or she has been resident in Malaysia for less than 182 days of the tax year, but
was resident in the country for a total of 182 consecutive days linked to days from
the year immediately preceding or following that tax year
3. The individual has been resident in Malaysia for at least 90 days of the current tax
year and was resident in Malaysia for at least 90 days in three of the four
preceding years
4. The individual will be resident in Malaysia in the year following and has been
resident in Malaysia in the three years preceding the one being taxed.

Malaysia’s tax year runs following the calendar year (a current year basis of assessment) –
the calendar year begins on 1 January and ends on 31 December.

The personal income tax system in Malaysia operates under the self-assessment tax system
(SAS). Hence, it is everybody’s legal responsibility to file his or her tax return before the
deadline. 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.

The amount of tax payable for the year must be self-computed, and the tax return is
deemed to be a notice of assessment upon its submission. The tax return is submitted not
later than 30 April (without business income) and 30 June (with business income). [5]

E-filing or online filing of tax returns via the Internet is available for those who wish to file
their returns using this method. Those who have chosen to file their returns for a year of
assessment by way of e-filing will not be issued a tax return form for subsequent years.

Individuals whose total income tax is equivalent to the amount deducted under the pay-as-
you-earn (PAYE) system can elect not to submit a tax return, subject to certain conditions
being fulfilled. [5]

Responsibilities of Individual Taxpayers.

1. Income declaration: based on Section77, individual taxpayers are required to provide full
information regarding their income for each year of assessment. They are also
responsible for submitting their tax returns to Inland Revenue Board (IRB) within 30 days
of receiving the return forms.

2. Change of address: it is one’s responsibility to inform the IRB regarding the change of
address. A new correspondence address, either temporary or permanent must be
provided to the IRB.

3. Tax payment: make payment to the IRB in the event of the monthly tax deduction falls
short of the tax assessed.

4. Keep documents: individual taxpayer is responsible to keep documents for a period of

seven years. Failure to keep the records will be penalized not less than RM300 and mot
more than RM10,000 or imprisonment not exceeding one year or both.
Filing of Tax Returns

Every individual who:

(i) has chargeable income for a year of assessment; or
(ii) has no chargeable income for that year of assessment but:
• has chargeable income for the year of assessment immediately preceding that
year of assessment; or
• has furnished a return for the immediately preceding year; or
• has been required to furnish a return (but failed to furnish a return) for the
immediately preceding year,
must file a tax return to the Director General by 30 April of the following year unless that
individual with no chargeable income receives a waiver from the Director General or has
business income.

The tax filing deadline for a person carrying on a business, such as sole proprietor,
partnership, club, association and Hindu joint family, is 30 June of the following year.
Under the SAS, no supporting documents need to be submitted to the IRB, but should be
kept for the purpose of tax audit. The taxpayer also has to indicate whether he/she has
complied with the Public Rulings issued by the IRB.

An individual and his/her spouse are required to file separate income tax return forms
regardless of whether the return forms are filed on a separate or combined assessment
basis. The tax return furnished by the taxpayer is deemed to be a notice of assessment and
the notice of assessment is deemed to be issued on the day the return is submitted to the
IRB. [4]

If tax deemed assessed on an individual upon the submission of one’s return exceeds the
total amount deducted from the individual’s salary, the difference must be paid on or
before the submission date. Tax for a year of assessment is due and payable on the
following dates in the year following that year of assessment: [5]
• 30 April for individuals deriving non-business income, and
• 30 June for those having business income
Type of Assessment:

a. Self: Individual is Single / Widow / Widower / Divorcee / Spouse with no source of

Income
b. Separate: Individual and spouse elect for separate assessment
c. Joint In the name of Husband / Wife: Individual and the husband / wife who elects for
joint assessment

Husband and wife may choose to either do a separate or a joint assessment. In line with this,
if you and your wife chose the joint assessment, your total income is accumulated and the tax
is assessed on either you (i.e. husband) or your wife. On the other hand, if the husband and
wife decide to do a separate assessment, the tax payable will be calculated separately.

Both husband and wife may use this opportunity for tax planning to reduce tax burden. If both
of them have their own income, they may choose to do either a separate or a joint
assessment, based on the lower total tax liability.

Joint Assessment:

With effect from the year of assessment 2001, either a husband or wife (referred to as the
'joining party') can elect that his or her total income shall be aggregated with the total
income of his wife or her husband (referred to as the 'assessed party'). However, in the case
of the husband, the election shall only be made with one wife and only applies if there is no
election made by his wife (or wives) to aggregate her (or their) income with his. [6]

To be eligible to elect for combined assessment for a year of assessment, the following
conditions must be satisfied:

• The husband and wife must have been living together continuously during the basis
year for that year of assessment. Note ‘living together’ is not a geographical concept
but one of intention – ie they must not be divorced or separated either by a court
 order, deed of separation, or in such circumstances that the separation is likely to be
permanent.
• The wife (or husband) must have total income to be aggregated with her (his)
husband (wife).

• They did not cease to be husband and wife in the basis year for that year of
assessment.
• The joining party must be a Malaysian resident, or if non-resident then a Malaysian
citizen.

Responsibility for obtaining and declaring income, and for submitting the return form, lies
with the assessed party.

Joint assessment is advisable if the husband’s or wife’s income is less than the amount of
relief available to her spouse as the total tax burden will be reduced. However, if the
husband’s or wife’s income is greater than the spouse’s relief, they are both encouraged to
do separate assessment to get maximum reliefs.

Separate Assessment by Husband and Wife:

As a general rule of thumb, a husband and wife with a total income of more than RM4,000
each are encouraged to opt for separate assessment. This is because the deductions for
both will be much more compared to joint assessment.

For example, if taxpayers decided to do joint assessment, they will get an additional
RM4,000 for spouse relief. However, if they choose to be assessed separately, the wife and
the husband will get RM9,000 each for personal relief.
Under separate assessment, both husband and wife are considered separate taxpayers.
Each will receive separate tax return forms and will be responsible for: [6]
• obtaining and furnishing their own individual tax returns
• declaring income, and claiming deductions and reliefs
• computing their own taxes
• paying their own taxes
• attending to their own tax affairs

Joint vs separate assessments: [7]

Joint Assessment Separate Assessment

• election must be made every year in
writing by 1st of April
• can elect in the name of husband (i.e.
wife’s income is aggregated with
husband’s) or wife (i.e. husband’s
income is aggregated with wife’s)
• personal relief can only be claimed
once as husband and wife are now
regarded as a single individual
• husband and wife will each prepare
their own tax assessment
• husband and wife will each be
entitled to their own personal relief
and other reliefs
• husband not entitled to claim wife’s
relief of RM3,000 and a further relief
of RM3,500 for a disabled wife
• either husband or wife can claim
child relief (if applicable), but not
both parties

The best way to find out if you should file jointly or separately with your spouse is to
prepare the tax return both ways. Double check your calculations and then look at the net
refund or balance due from each method.

If you use e-filing to file for your tax returns, you will be able to see the tax due for each
individual and compare it with the joint assessment. This way, you will be able to see which
filing status gives you the biggest tax savings.
In conclusion, when it comes to tax, understanding how best to manage your finances
(effective tax planning) can significantly benefit your financial position. In fact, everyone
who is liable to pay tax needs professional advice and support if they are to optimise their
tax position and ensure they meet all the compliance requirements.

For this and other reasons, you need to review your tax plan at least once a year or on the
annual basis to find out what approaches can best accommodate your financial goals and
preserve your and your family’s wealth.

References:

1. Lexico.com, 2022
2. Matthew v. Chicory Marketing Board, 1938
3. R.V. Barger, 1908
4. 3ecpa.com, 2022
5. https://taxsummaries.pwc.com/malaysia/individual/tax-administration
6. Accaglobal.com
7. Imoney.my
Part 2:
1. List the chargeable income that one individual can have.

Chargeable income, also known as taxable income, is your total annual income minus all the
tax exemptions and tax reliefs you are entitled to.

With effect from the year 2015, an individual who earns an annual employment income of
RM34,000 (after EPF deduction) has to register a tax file. This means, those who earn a
minimum salary of about RM3,000 a month should file their income tax.

Income tax doesn’t just cover your monthly salary, but all types of income.

These are the types of income that are taxable:

• Business or profession

• Employment

• Dividend - defined as a distribution or payment out of profits or any

undistributed profits of a company to its shareholders. The distribution depends
on the ratio that has been fixed by the company, and it can be in terms of money
or other property. Dividend is considered an income because the payment is from
the company’s capital fund.

• Interests (except bank deposit interests) - interest could be defined as the profit
in goods or money made on invested capital. Interest income could be separated
into two categories namely investment income and business income. Interest is
chargeable under Section 4(c), Income Tax Act 1967 if the interest income is
recognised as an investment income and not business income.
• Discounts - assessable under Section 4(c). A discount arises when the bills of
exchange are purchased below their face value. Any profit arising from discounting
transaction and any profit accrued by holding the bill until maturity or sale before
maturity are tax assessable. However, that discount does not include the one
allowed by the trader on the purchase of goods and the one received from creditors
for early payment.

• Rent - according to Section 2 of the Income Tax Act 1967, rental income can be
defined to include any sum received for the use or occupation of any premises or for
the hiring of any things. Rental income includes rent from both moveable and
immoveable properties.

• Royalties - referred to as a share in the proceeds paid to an inventor or a proprietor

for the right to use his invention or services. Royalty income received in Malaysia will
be taxed if it derived from Malaysia; or received in Malaysia from outside Malaysia
(applies to individual resident, companies in specialised industries, trust, co-
operative societies).

• Premiums - defined as a sum of money or bonus paid in addition to a regular price,

salary, or other amount.

• Pensions - a periodical payment made to an individual who has permanently ceased

to exercise an employment. The payer of the pension is the employer and it may be
paid contractually or voluntarily to his employee. Pension income can also be paid to
the employee’s wife and children. Pension income is assessable under Section 4(e) of
the Income Tax Act 1967.

• Annuities - refers to sum of money payable on a regular basis. The income is either in
perpetuity for life or a fixed term such as insurance. Annuity is assessed under
Section 4(e).
 • Perquisites, which includes bill claims, company credit cards, loans from company,
sponsored club memberships, sponsored child tuition fee, personal driver and any
benefits offered by your employer that could be converted into cash.

2. Discuss the responsibilities of individual taxpayer who has employment and business
income together.

Gains or profits from carrying on a business, trade, vocation, or profession are liable to tax.

Business includes:
• Sole Proprietorship/Self Employed
• Individual carrying on a business on his own
• Partnership
• Includes any business venture of two or more individuals combining ownership,
authority, work force or skill in running a business where profits are shared.
Partnership can exist between:
✓ Individuals
✓ Two companies
✓ Individual and Company
✓ Individual and trustee

Responsibilities:
• To register as a taxpayer (if eligible) – Register File
• To get a copy of Income Tax Return Form from the nearest LHNDM Branch (if
the form does not reach on time)
• To complete Form B (Sole Proprietor) and Form P (Partnership)
• To prepare statement of accounts and other statements such as rental
statements and commission statements.
• To engage qualified tax agent to prepare business accounts (if required).
• Refer to supporting documents such as life insurance receipts, donation
receipts, receipt books, zakat receipts for deductions, reliefs and rebate.
• Refer to Explanatory Notes as guide – Form B Explanatory Notes / Form P
Explanatory Notes
• Additional Information on Partnership
o The Precedent Partner is responsible for filling up Form P and issuing
Form CP30 to each and every partner- CP30 Form.
o CP30 shows distribution of income (profit/loss) to each partner. o
Every partner has to report his share of partnership income in his
Form B.
o Precedent Partner is also responsible for informing LHDNM officially if
the partnership ceases/changes to a sole proprietorship/private
limited company
• Husband and wife have to fill separate Income Tax Return Forms.
• To compute their tax payable.
• To check and SIGN duly completed Income Tax Return Form
• To submit the Income Tax Return Form by the due date.
• All supporting documents like business records, CP30 and receipts need not
be submitted with Form P.
• Keep all business records, supporting documents for deductions, reliefs and
rebate for a period of 7 years.
• Business records include profit and loss account, balance sheet, sales records,
purchase records, stock receipts, bills and bank statements.
• The last date for submission of Form B and P is 30th June.
• Payment of tax due (if any) should be made on or before 30th June.
• To comply with the installment scheme (CP500) - link Installment Scheme
CP500