Collected by the Malaysian government to develop the economy
Under the Income Tax Ordinance 1947, Malaysia started to collect income tax on January 1, 1948. The earliest tax collections recorded in 1950 showed returns of 47.5 billion dollars in 1950. In recent years, the IRB has been actively promoting its e-filing system which allows taxpayers to fill out their tax returns and submit it remotely via the internet. In 2009, 1.5 million tax-payers submitted their returns online.
First, let us define what taxes are. Income taxes are sum of money (direct taxes and indirect taxes) that collected by the Malaysian government to develop the economy. As for direct taxes, it includes petroleum income taxes, stamp duties, personal income taxes such as employment income earned by a person and business income earned by a company and sold on. Direct taxes will be collected by Inland Revenue Board of Malaysia (IRB). As for indirect taxes such as service tax, import duties and sale tax will be collected by custom.
Generally, tax resident individuals who involve in personal income tax with chargeable income of RM2,501 and above per annum is 1 – 27%(after deduction of personal reliefs); Non resident individuals are taxed at a flat rate of 27%. Taxable income of companies is subject to corporate tax at the rate of 25% in 2009. Tax Treatment on Small and Medium Enterprises (SME): The first RM500,000 of chargeable income of a SME is taxed at 20%, with the balance being taxed at 25%. The tax rate for a person who signed Petroleum Agreement with Petronas or Malaysia-Thailand Authority and carry out petroleum operation is 38%. Withholding tax for non-resident persons with special classes of income, interest, royalty and other income such as commission, guarantee fees, agency fees, brokerage fees, introducers fees, etc. are 10%, 15%, 10%, and 10%; Contract payment on: account of contractor is10% and account of employee is 3%.
Moreover, sales tax rates in Malaysia are between 5% and 10% is for majority of the goods except for food preparations. Nevertheless, alcoholic and non-alcoholic compound preparations used for making beverages imply a tax rate of 20%. Sales tax is also imposed on petroleum and petroleum products according to specific rates. Service tax 5% is imposed on taxable services provided by taxable persons. There are some goods are listed under the Excise Duties Order 2004, the tax rate imposed on motorcars is 75% to 105%; 4 wheel drives is 60% up to 105%; motor cycle is 20% to 30%; intoxicating liquor is RM0.10 plus 15% per litre and RM42.50 per 100% vol per litre plus 15% per litre; Cigarettes are RM0.18 per stick plus 20%.
IRB Malaysia has transited Official Assessment System (OAS) to Self Assessment System (SAS) in the year 2001. It is the first step for IRB to modernize the taxation system in Malaysia. By implementing this SAS system, it requires the tax payers to understand all the laws and regulations and then, calculate the tax payment themselves. Sometimes taxpayer will under state the tax paid amount and cause the taxpayer is being penalized. In order to prevent this happen, IRB will take several steps such as educating the tax payers about the new system. Through this, it will raise the taxpayer’s ability to understand the law.
Since tax revenue is the most important revenue, government has to make sure taxpayers pay their taxes. In order to create willingness among taxpayers to pay tax, it is important to create an understanding among taxpayers on how and where the money collected spent by the government (Ahmad, Hanefah, Noor). It is important to inform the taxpayers on their roles in developing the country like paying tax to raise the revenue for the government to develop the country. It can be done through the public announcement in newspaper, internet or any political magazines.
Of the tax revenue effects of changes in the level of total tax revenue depends on a good investigation, especially the price elasticity of demand. Stand in the position of Economics, if the goods have a low elasticity of demand (which is the price elasticity, an increase in tax or duty will lead to a small decrease in demand. The decrease in demand is not enough to offset the higher tax raised from each unit. Overall tax revenue will therefore rise. Conversely, for goods which are price elastic, an increase in tax rate or duty would lead to a fall in tax revenue.
As a conclusion, "In this world nothing is certain but death and taxes." said by Benjamin Franklin. Generally, all income of companies and individuals accrued in, derived from or remitted to Malaysia is liable to tax. This is the reason why tax revenue contribute most important revenue to Malaysian government. However, taxation has a number of effects. It reduces the level of disposable income, redistributes income, affects prices, reduces the ability to save and may affect effort and enterprise. Therefore, government must be controlled country’s tax policies carefully to make sure changed in taxation would not affect country overall economies.