ACT 3151 TAXATION 1

1. ACT 3151TAXATION 1 Introduction to Tax Law

2. WHAT IS TAX?? • SOME KIND OF PAYMENT TO GOVERNMENT • HAD TO BE FORCED??

3. DEFINITION • ‘contribution levied on persons, property or business for the support of government’ – Oxford Dictionary • ‘a compulsory exaction of money by a public authorities for public purposes enforceable by law’ – Matthews vs. The Chicory Marketing Board (1938) • ‘’the process of rising money for the purposes of government by means of contributions from individual persons’ – R vs. Barger (1908)

4. Definition; to conclude Tax is payment / contribution by public to government, which is not penalties or specific payments, to meet the administrative and development expenditure of the country.

5. Characteristics of a tax-High Court of Australia in MacCormick Vs. FC of T • It is compulsory payment • The money is raised for government purposes • The exactions do not constitute payment for services rendered • The payments are not penalties • The exactions are not arbitrary ;

6. HISTORICAL BACKGROUND • 1.1.1948- Income Tax Ordinance, 1947 • Introduced by the British Govt. into the Federation of Malaya • Based on Model Colonial Territories Income Tax Ordinance,1922 which was designed for the British Colonies • 1.1.1968- INCOME TAX ACT 1967 • replacing Income Tax Ordinance 1947, • consolidated of 3 laws of Income Taxation : • (Income Tax Ordinance 1947, • Sabah Income Tax Ordinance 1956, • Sarawak Inland Revenue Ordinance 1960.

7. HISTORICAL BACKGROUND • Addition to income tax; • 1967- Supplementary ITA 1967 (including development and timber profit tax) • 1967- Petroleum (Income Tax) Act 1967. • 1968- Investment Incentives Act 1968 • 1986- Promotion of Investment Act 1986 • Land Speculation Tax Act 1974 • Real Property Gain Tax Act 1976 • Share (Land Based Co.) Transfer Tax Act 1984

8. Other Tax besides income tax ; • 1991- Stamp Act 1949; comprising of • Stamp Ordinance 1949 • Stamp Ordinance 1952 (Sabah) • Stamp Ordinance 1933 (Sarawak) • Customs Act, 1967 • Sales Tax Act, 1972 • Service Tax Act, 1975 • Excise Act, 1976

9. DIRECT Tax paid directly by those on whom it is levied, consist of : Income tax-individual tax , company tax Real property gain tax Stamp duty Petroleum tax INDIRECT Tax generally collected vis third party. Sales taxes, service tax, excise duty, export duty, import duty. TYPE & CLASSIFICATION OF TAX

10. CONTRIBUTION TO THE ECONOMY • method for Government obtain revenue • budget its annual expenditure • Breakdown of Govn. Revenue: (year 2003) • Direct tax - 46.2% • Indirect tax - 23.6% • Non-tax revenue - 30.2% • Direct tax: major source of government revenue

11. OBJECTIVES OF TAX POLICIES • Revenue purposes • Effectively collected, minimum cost • Regulate private sector • Encourage undesirable activities • Distribute income & wealth • Fairness & equity • Continue Govt. in power

12. Burden of taxation • PROGRESSIVE TAX • Takes an increasing proportion of income as income rises • Burden of tax is heavier on higher income earners • e.g- individual income tax • PROPORTIONAL TAX • Takes the same proportion of income at all level • Persons pay flat rate of tax • e.g-company tax

13. Burden of taxation • REGRESSIVE • Takes a decreasing proportion of income as income rises. • Impact of tax is greatest on lower income-earners.

14. Burden of taxation For Indirect tax • AD VALOREM • Tax based on value, fixed % of transaction value absorbed as tax • e.g-sales tax (10% imposed on products) • SPECIFIC RATE • Specific monetary amount levied on each unit. • e.g-import duty (RM100 tax on goods)

15. SOURCES OF TAX REVENUE LAW • Formal sources of law • Statute Law / legislation- law that enacted by Parliament, e.g-ITA 1967 • Case law / un-enacted law-law that created by the decision of the courts • Informal sources of law • The Practice of the IRB • The day-to-day practice (formal/informal) • Ruling/guidelines issued by the IRB