: Compare and Contrast the Three Categories of Scope of Charge to Income Tax
Question 1: Compare and contrast the three categories of scope of charge to income tax
A modern form of income tax was introduced into Federation of Malaya in 1947 by using the derived and remittance basis. Income Tax Act (ITA) 1967 came into effect has imposed world income basis on the resident company involved in specialized industries. Malaysia adopted a territorial and remittance. With effect of year of assessment of 2004, taxation basis amended to exempt income remitted into Malaysia from oversea. Until now, Malaysia income tax imposed on territorial basis that tax on income accrued in or derived from Malaysia. The revolution of these three taxation basis has different scope of charge to resident person and non-resident person. The individual and company residence status and also the sources of income are examined under three basis to determine which kind of income received by taxable person should be taxed. Resident status is determined by the number of day physically presence within the country where generally individual stay in Malaysia total 182 days or more will be a resident.
Territorial basis:
Under territorial basis which Malaysia is applying currently, taxable person such as individual, company or bodies of person is chargeable only on income accruing in or derived from Malaysia. Income arising within Malaysia borders means the territories of the Federation of Malaysia, the territorial waters of Malaysia and the sea-bed and sub-soil of territorial waters and any area extending beyond the limits of the territorial waters of Malaysia are subjected to tax. In this scope of charge, resident and non resident individual and company are all taxable on its income derived from Malaysia only. Non resident company taxed on income accrued or derived from Malaysia if it has permanent establishment in Malaysia.
Derived and Remittance Basis:
This scope of charge provided that resident person is chargeable on income accruing in or derived from Malaysia and
A modern form of income tax was introduced into Federation of Malaya in 1947 by using the derived and remittance basis. Income Tax Act (ITA) 1967 came into effect has imposed world income basis on the resident company involved in specialized industries. Malaysia adopted a territorial and remittance. With effect of year of assessment of 2004, taxation basis amended to exempt income remitted into Malaysia from oversea. Until now, Malaysia income tax imposed on territorial basis that tax on income accrued in or derived from Malaysia. The revolution of these three taxation basis has different scope of charge to resident person and non-resident person. The individual and company residence status and also the sources of income are examined under three basis to determine which kind of income received by taxable person should be taxed. Resident status is determined by the number of day physically presence within the country where generally individual stay in Malaysia total 182 days or more will be a resident.
Territorial basis:
Under territorial basis which Malaysia is applying currently, taxable person such as individual, company or bodies of person is chargeable only on income accruing in or derived from Malaysia. Income arising within Malaysia borders means the territories of the Federation of Malaysia, the territorial waters of Malaysia and the sea-bed and sub-soil of territorial waters and any area extending beyond the limits of the territorial waters of Malaysia are subjected to tax. In this scope of charge, resident and non resident individual and company are all taxable on its income derived from Malaysia only. Non resident company taxed on income accrued or derived from Malaysia if it has permanent establishment in Malaysia.
Derived and Remittance Basis:
This scope of charge provided that resident person is chargeable on income accruing in or derived from Malaysia and
References: 1. Inland Revenue Board Malaysia, 2011. Residence Status of Companies and Bodies of Persons. [online] Inland Revenue Board Malaysia. Available at:< http://www.ctim.org.my/cms/file/news/14/00693_Residence%20Status%20of%20Companies%20And%20Bodies%20of%20Persons%20PR5_2011%20(160511).pdf> [Accessed 23 March 2012] 2. Lee Voon Siong,2008. Taxable income for individuals, businesses.[online] Available at:< http://biz.thestar.com.my/news/story.asp?file=/2008/3/17/business/20556688&sec=business> [Accessed 24 September 2012] 3. SJ Grant Thornton, 2011. Expatriate tax ebook-Malaysia. [online]Available at:< http://www.gti.org/Services/Tax-services/Expatriate-tax/Expatriate-tax-ebook/Malaysia/basis-of-taxation.asp> [Accessed 24 September 2012]