Revenue legislation and administration: The Federal Constitution provides that tax shall only be levied by or under authority of federal law. This means the general body of tax law is to be found in tax statutes, supplemented by other legislative instruments such as subsidiary legislation and ministerial orders. However, the Director General of Inland Revenue and the Inland Revenue Board (Revenue) are responsible for administrative functions, such as the care and management of direct tax matters. In the exercise of their administrative powers, the Revenue purportedly issued a number of public rulings and guidelines which are, strictly speaking, not legally binding upon taxpayers before the year of assessment (YA) 2007, as public rulings and guidelines issued before January 2007 are given legislative endorsement retrospectively only with effect from YA 2007 onwards. While the Revenue may insist upon applying these public rulings and guidelines, their conduct may be open to challenge particularly in regard to public rulings and guidelines which the Revenue has issued and applied in YA 2006 and previous YAs.
The Income Tax Act 1967 (ITA) is the principal legislation for taxing income. The general scope encompasses the income of any person accruing in or derived from Malaysia or received in Malaysia from abroad. It is a question of fact as to what constitutes income, that is, gains or profits from a business or employment, dividends, interests, discounts, rents, royalties, premiums, pensions, annuities or other periodical payments, and other gains or profits.
Special provisions govern the taxation of income of, for example, insurance companies, shipping and air transport companies, banks and financial institutions, leasing companies, unit trusts and property trusts.
Malaysian income tax is imposed on a territorial, not worldwide, basis. The prevailing corporate tax rate is 25% with effect from YA 2009 but with applicable tax holidays, incentives, exemptions and concessionary or reduced tax rates, effective tax rates can be significantly reduced. With the abolition of the imputation system, a single-tier tax system has been in force from YA 2008.
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