Malaysian taxation
With the increasing changes in the external environment, an entity owner becomes more cautious in terms of safeguarding its business interest from all the external competition lies in the market to maintain its potential for capturing larger market share (Shafai, Amran and Ganesan, 2018). To analyze the financial performance of an entity, it is essential to keep a close watch on the tax structure of the country in which the firm is operating its business empire as minute changes in the existing tax structure of the country will directly affect the overall revenues earned by a business. The net profit will get affected with the increasing or decreasing amount of tax as decreasing tax rate will increase the net profit of the company and increasing tax rate will, in turn, decreases the net profit of an enterprise which has several effects on an enterprise (Thompson and Neuzil, 2018). In this assignment, Malaysia taxation is to be discussed by highlighting various concepts such as discussing the nature of stamp duty, real capital gain tax. These will helps in stressing the tax fundamentals for different parties related with the current tax structure such as assesses who is paying the tax which may include all the individuals and the corporate parties that is the company (Lang, Pistone, Schuch and Staringer, eds., 2018). Tax calculations examples are mentioned in the assignment to give a crux about determining a tax return of an entity and lastly, this report will discuss all the exemptions and penalties imposed on a party whose tax is assessed by an assessor.
The term taxation refers to imposition of taxes on all the individuals or corporate entities to fund all the expenditures made by public authorities who may include government, statutory bodies and property head who will collect different kinds of taxes on behalf of the government from all the mentioned parties who are liable to pay tax for a particular year (Adam and Yusof, 2018).
In Malaysia, a tax is collected by the federal government, state, and local Municipal Corporation as per the mention tax slabs for either the individuals or the corporate bodies in determining its annual tax return (Kasim, Umar, Martin and Yassin, 2018). Important and primary tax legislation such as income tax act 1967, Real property gains tax act 1976, Promotion of Investments act and lastly, petroleum income tax act 1967 are considered as the major tax concepts in Malaysia’s taxation structure.
Nature of stamp duty and Real capital gain tax
The government of Malaysia assigns tax base which will include income, property possession, and commodity held by a user for a particular assessment year are categorizes on which tax rate is applied to determines their total return held for that particular period (Hor and Rahmat, 2018). The tax is directly determined by multiplying the tax base with the tax rate applicable to the party whose tax is to be determined by a tax determiner to estimate its tax for an assessment year.
Stamp duty is a legal attested form governs under stamp duty act 1949 which will give legal identity to any agreement to increase its legal value to give those legal rights to a party. It is a written and legal evidence consider as a valid legal instruments used in various events such as creating agreements, mortgaging of a house, building or shops, bill of sale and taking an insurance policies, With the help of a stamp duty an individual can showcase its legality to cross-question in the future in case of any discrepancies (Ismail and et.al., 2018). The stamp duty payable on these instruments is to be payable to three designated parties who are the representatives of the government in collecting the stamp duty revenue includes stamp duty office and Inland Revenue board (Aziz and Hanif, 2018). As per section 33 under the schedule of the stamp duty at, the responsibility of paying the stamp duty by all the parties such as in case of a conveyance, the grantee or the transferee will pay the stamp duty on the legal instruments. In case of a mortgage, the person liable to pay the duty on the mortgage document is the mortgagor who lent its property on a mortgage to the party and in case of the lease agreement the duty will be payable by Lessee. There are two kinds of stamp duties such as Ad-Valorem duty and fixed duty to determine the duty to be payable on different instruments (Guide, 2018). The amount of stamp duty payable by an individual is to be determined by considering the purchase if the property and the lease or tenancy agreement formed by a party with the owner of the premises.
This act will be governed under real capital gains tax act 1976 which is levied by Inland revenue board on the gains incurred on capital assets that is the chargeable asset in the purview of the capital gain tax (Erdem, 2018). The chargeable gains arise when a property is sold in Malaysia by deducting the cost of an improvement on that property is excluded from the selling value or the market value of that asset to determine the chargeable gains which will be taxed under this act. Real property gains tax comes into operation on 7 November 1975 is liable only on the building by excluding the land under this act.
Real Property gains tax
The real property gains tax consists of various terms such as the chargeable person is a person who is a resident or not resident of Malaysia for a particular year is considered as a chargeable person under the real capital gains tax when they dispose of an asset (Alm, 2018). It is essential to consider all the asset under the real property head to determine the capital gains tax liability on the disposable of real property which consisting of land located in the Malaysia and interest or right over the land in the possession of an individual. The disposal price is the price used to sell the assets by excluding the number of costs incurred in improving the property (Rao, 2018). The Real capital gain tax rate is 5% imposed on the gain arises on the disposal of the capital asset without seeking the life of that asset.
While determining the real proper gains tax, it is also essential to know about all the permitted expenses to get deducted out of the sales consideration in estimating the net capital gain generated from that asset. Another term which will be discussed is incidental costs incurred by an individual related that particular asset. Permitted expenses include various expense such as expenses charged in accordance with the capital asset, expenses incurred wholly related to an asset for preserving the title of taking the chargeable asset in determining the capital gain arises from it (Zelenak, 2018). Another term is about the incidental costs incurred in a entity related to an asset on which an individual will determine the capital gains tax consisting of fees, commission or salary payable to the surveyor who offers its professional services in estimating the actual worth or value of the property to give a basic input in form of market value of an asset to determine the capital gain tax. This head will also include the expenses incurred in transferring an asset to another party such as paying the stamp duty and this will also cover the cost of giving advertisement in the newspapers to invite the buyers to buy the property which the seller is selling will also cover under this head as incidental costs are that costs which will incur by an entity unintentionally without prior intimation and with no fixed tenure.
Principles of taxation are considered as the tax fundamentals held responsible for creating a strong base and fundamentals which is based on several pillars behind the successful taxation structure such as Fairness, clarity and certainty, convenience, efficiency, and neutrality (Fleurbaey and Maniquet, 2018). The fairness principles depicts the ability to pay and receive the benefits received by an individual in terms of income received by a person for a particular year and at the same time pay back all the expenses incurred for that particular year whether related to an asset when talking about property gains tax in which a particular asset is disposed whole gain arises from that asset is to be generated after deducting all the expenses arises from it (Söllner, 2018). Thus principles depict the honest and fairness maintained by an individual or an entity by maintaining the dignity of the entire taxation structure. Another principle is clarity and certainty which shows the clear taxation rules maintained by an individual for determining the income tax return or capital gain tax earned on an asset for a particular year. It is essential to use a convenience principle in which an individual will be easy to calculate the tax return by using different methods according to its preference and the knowledge as for the sake of all the taxpayers the taxation structure develops various methods to give the extra method for all the individuals. The efficiency principle says that taxation administers efficiently and economically handles the taxation system to determine the overall tax return different from one party to another. The last principle, neutrality depicts that the action of an individual or an entity should not be offended as this will not affect the behaviour of other people like the tax returns calculated by an entity should be as per the taxation rules prepare by an entity (Du Preez, 2018).
Stamp Duty Calculations
|
Purchase of Property |
|
|
Particulars |
Amount |
|
Market value of property |
RM 3560000 |
|
First RM 100,[email protected]% |
RM10000 |
|
RM 100,[email protected]% |
RM 5120 |
|
Total Stamp duty payable |
RM 15120 |
|
Lease/Tenancy |
|
|
Particulars |
Amount |
|
Lease Period |
3.5 years |
|
First [email protected]% |
0.01 |
|
0.05 |
|
|
Total lease period |
0.06 |
|
Real gain property tax |
|
|
Particulars |
Amount |
|
Sales consideration |
RM500,000 |
|
Less: Cost of improvement |
(RM100,000) |
|
Capital Gain |
RM400,000 |
|
Capital gain tax @5% |
RM20000 |
|
Particulars |
Exemption |
Penalties |
|
Stamp Duty |
When an associate company transfers its property is exempted from paying stamp duty as per section 15 A. Under which, 90% of the assets should be transferred by the associated company to avail this exemption. A transaction takes places between husband and wife is outside the purview of paying stamp duty. 50% stamp duty is exempted when a parent distributes its property to its child. |
In the case of a stamped instrument, 5% duty is imposed on the instrument during the 3 months and elapsing the 30 days time for stamping. 10% duty is applicable as a penalty when the stamping period of the instrument will range from a period of 3-6 months. 20% duty is applicable as a penalty in another case. |
|
Real Property Gains tax |
In below three of the cases, where the owner of the property is not liable to pay the tax on real property gain are: A person having property kept for residential purpose once in its whole life. Gain arises on the disposal of property between parent and child, husband and wife and grandparents and grandchildren Exemption from the capital gain in value up to RM 10000 or 10% of the net gains whichever is higher. Husband or wife transfers the properties to each other are outside from this act. Getting a part of the property in an inheritance from deceased. Transferring shares held by an individual in a company is transferred from a person to that company does fall under this act. Transferring an asset which is held as a collateral security before taking a loan. Acquisition of an asset by the government. Selling of any asset for giving charity does not fall under this act. If the acquisition price of an asset exceeds the disposable price of the sold asset dies not does under this act as this event consider as an allowable loss which will separately recorded in the books of account of an entity which will be carry forward to the next year as in this way the loss will get compensated with the earned capital gain of that year by checking the similar category to redeem the amount of loss from the earned capital gain. The amount of allowable loss is multiplied with the real proper gains tax rate and this will get carried forward to the future year to deduct the amount of loss from the capital gain of that year. |
References
Adam, M. N. H. and Yusof, N. A. M., 2018. A Comparative Study on the Burden of Tax Compliance Costs amongst GST Registered Companies in Malaysia and Abroad. Journal of Science, Technology and Innovation Policy. 3(2).
Alm, J., 2018. What are the Costs of a New Tax Administration? The Case of a Personal Income Tax in Kuwait(No. 1804).
Aziz, W. N. A. W. A. and Hanif, N. R., 2018. Housing policy in Malaysia: bridging the affordability gap for medium-income households. In Housing Policy, Wellbeing and Social Development in Asia (pp. 141-156). Routledge.
Du Preez, H., 2018. Constructing the Fundamental Principles of Taxation through Triangulation. Journal of Legal Tax Research.
Erdem, N., 2018. The need for re-engineering in the real estate appraisal system in Turkey. Survey Review, pp.1-13.
Fleurbaey, M. and Maniquet, F., 2018. Optimal income taxation theory and principles of fairness. Journal of Economic Literature. 56(3). pp.1029-79.
Guide, G. P., 2018. Property in Malaysia| Malaysian Real Estate Investment.
Hor, K. and Rahmat, M. K., 2018. Analysis and recommendations for building energy efficiency financing in Malaysia. Energy Efficiency. 11(1). pp.79-95.
Ismail, R., and et.al., 2018. Consumers Basic Right to Housing: The Role of Institutional Frameworks in Malaysia. International Journal of Asian Social Science. 8(8). pp.501-508.
Kasim, R., Umar, M. A., Martin, D. and Yassin, A. M., 2018. Public Goods Delivery as a Contributing Factor to the Property Tax Revenue Generation in Malaysian Local Governments. Advanced Science Letters. 24(6). pp.4674-4678.
Lang, M., Pistone, P., Schuch, J. and Staringer, C. eds., 2018. Introduction to European tax law on direct taxation. Linde Verlag GmbH.
Rao, S., 2018. Country notes: Coverage of OECD Multilateral Instrument on India and Its Top 10 Tax Treaty Partners in Terms of Foreign Direct Investment. Intertax. 46(5). pp.434-449.
Shafai, N. A. B., Amran, A. B. and Ganesan, Y., 2018. Earnings Management, Tax Avoidance and Corporate Social Responsibility: Malaysia Evidence. Management. 5(3). pp.41-56.
Söllner, F., 2018. Road traffic taxation in Germany: the present system, its problems and a proposal for reform. Journal of Tax Reform. 4(1). pp.57-72.
Thompson, J. and Neuzil, D., 2018. Valuing Bonus Depreciation Under the New Tax Law. Business Valuation Review. 37(1). pp.15-19.
Zelenak, L. A., 2018. Leaving it up to Treasury: Congressional Abdication on Major Policy Issues in the Early Years of the Income Tax. Law and Contemporary Problems. 81(2). pp.137-165.
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