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Overview of Tax System in Malaysia

Overview of Tax System in Malaysia

Overview of Tax System in Malaysia

Taxes in Malaysia have always been an important source of government revenue and the most dependable source of government funding. In many countries, tax relief has become a significant tool to boost the economic growth. It is to ensure that countries are able to maintain and improve its global competitiveness and to expand. The attractiveness of the tax system structure is important to ensure that it able to attract domestic and foreign investors (Taha and Loganathana 2008). Spending increases every year in Malaysia as well as throughout most of the world. However, the question here is whether sufficient resources are available to fund these expenditures. Careful budgeting is critical and, a good fiscal policy is vital to stimulate a stable economy. The tax system in Malaysia is derived from two sources, which can be classified as direct tax revenue and indirect tax revenue. The responsibility for collecting tax revenue falls on Lembaga Hasil Dalam Negeri (LHDN) and Royal Customs and Excise Department. Direct tax revenue consists of income tax from individuals, companies, and petroleum, stamp duty, estate duty and real property gains. Indirect taxes are collected by the Royal Customs and Excise Department which consist of import duties, export duties, excise duties and most recently the Goods and Services Tax (GST).


Who is Liable?

When it comes to the working class in Malaysia, whether resident or non-resident, all of us are liable to pay income tax when we have a recurrent income of a certain bracket (Illustration below).


Generally, an individual becomes a tax resident if the aggregate number of days the individual stays in Malaysia during the basis year is 182 days or more. Income derived from Malaysia by residents and non-residents is subject to Malaysian tax, irrespective of where the employment contract is made or where the remuneration is paid (Tam 2012).

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