became vital economic tools to govern economics for any country, especially to
developing countries like Malaysia. In other words, fund collected from
taxation used by the government to provide facilities for its population and
for the development of the nation. Other than that, income tax is one of the
way to make sure the government fund is available for spending. Inland Revenue Board
(IRB) has play their main role as an agent of Malaysian Government and to
provide services in administering, assessing, collecting and enforcing payment
of income tax and other revenue as may be agreed between the Government and the
revenue has been classified to tax revenue, non-tax revenue and non-revenue
receipts. Tax revenues include both Direct and Indirect Taxes. Direct taxes are
collected by the IRB which consists of income tax from individuals, companies,
stamp duty and real property gains tax. While for indirect taxes the
responsibility of collection is taken by the Royal Customs and Excise
Department. Indirect taxes include import duties, excise duties, sales tax and
service tax. Non-tax revenues of the Malaysian Government consists of fees for
issue of licenses and permits, fees for specific services, proceeds from sale
of government assets, rental of government property, bank interests, returns
from government investments fines and forfeitures.
Simple tax laws are necessary so that
taxpayers understand the rules and can comply with them correctly and in a
cost-efficient manner. Simplicity in the tax system is important both to
taxpayers and tax administrators. Complex rules lead to errors and disrespect for
the system that can reduce compliance. Simplicity is important both to improve
the compliance process and to enable taxpayers to better understand the tax
consequences of transactions in which they engage in or plan to engage.
Tax simplification will benefit individual
taxpayers, businesses, federal and state tax agencies, and the economy. Many
politicians and tax administrators now cite simplification as a justification
when they initially propose changes to tax laws. Then, as these proposals
proceed through the legislative or regulatory process, budget considerations,
political agendas, and other policy objectives take precedence over the need
for simplification. The resulting tax law changes often increase, rather than
For example, the government must view tax
simplification as a priority tax policy objective when developing legislation
and administrative guidance. Complexity is often overlooked in drafting
legislation because negative impacts on the tax system are often less obvious to
lawmakers trying to solve today’s” problems and only become apparent in the
long-term. The cumulative effect of undue complexity is highly detrimental and
should be addressed now, before the system fails to serve our nation’s revenue
needs. For lawmakers to seek simpler approaches, legislators must better
understand why the current law is difficult from both an administrative and
compliance perspective. They must also believe that a simpler tax law is
possible. Although some may view tax complexity as an insurmountable problem,
incremental steps toward simplification could help reduce complexity for many
At both the federal and state level,
legislators cite various social and economic objectives as the justification
for tax law changes. Budget considerations then constrain the timing and extent
of these changes. Once lawmakers identify desired tax policy and revenue
objectives, the simplest and most transparent approaches to implementation
should be sought. Complex or multistep calculations should not be required.
Likewise, multiple provisions to achieve essentially the same or similar
objectives should be avoided. Alternative choices between deductions and
credits that require taxpayers to make multiple calculations to determine which
yields the greatest tax benefit should be kept to a minimum. Tax recordkeeping
should closely emulate normal business practices. The language used in
definitions, explanations, and eligibility requirements should be
understandable by the target group of taxpayers.
Individual taxpayers and businesses are
increasingly spending more time preparing tax-related forms and records. An
increasing number of taxpayers are incurring costs for tax guidebooks, tax
preparation software, and tax return preparation. Uncertainties and an
inability to understand the tax laws cause anxiety and frustration for many
taxpayers. Compliance costs, in terms of both time and money, should be
minimized for all taxpayers. Compliance costs also need to be commensurate with
the abilities, business sophistication, and resources of the affected
taxpayers. Higher compliance costs may be appropriate for complex business and
investment transactions, but not for small businesses and middle-income
taxpayers. Likewise, special provisions targeted to low-income taxpayers and
the elderly should not be so complicated and confusing that these individuals
must pay for tax return assistance to benefit.
A tax system
needs to reflect the realities of competing in a global economy. Information technologies
and other advances are reducing the significance of place in the conduct of
economic activity. No state can afford to ignore this by placing themselves at
a distinct comparative disadvantage relative to other states. Tax systems
should also be responsive to changing regulatory and competitive circumstances.
everyone agrees that competition is vital to a well-functioning market economy.
Since the days of Adam Smith, economists have understood that the invisible
hand of the marketplace works only if producers of goods and services vie with
one another. Competition keeps prices low and provides an incentive to improve
and innovate. For much the same reason, competition among governments leads to
better governance. In choosing where to live, people can compare public
services and taxes. They are attracted to towns that use tax dollars wisely.
Competition keeps town managers alert. It prevents governments from exerting
substantial monopoly power over residents. If people feel that their taxes
exceed the value of their public services, they can go elsewhere. They can, as
economists put it, vote with their feet.
argument applies not only to people but also to capital. This is because
capital is more mobile than labor,
competition among governments significantly constrains how capital is taxed.
Corporations benefit from various government services, including infrastructure,
the protection of property rights and the enforcement of contracts. But if
taxes vastly exceed these benefits, businesses can and often do move to places
offering a better mix of taxes and services.
ENCOURAGE PREDICTIBILITY AND STABILITY
Tax systems should have appropriate levels of
predictability and stability to enable the government to determine the timing
and amount of tax collections. A dynamic and flexible tax system is necessary
in order to adapt to changing needs and technological and commercial
developments. It is important that a tax system is flexible to meet the current
revenue needs of the government while adapting to changing needs on an ongoing
basis. Thus, it is necessary to review tax systems regularly to ensure they are
supportive of the jurisdiction’s goals or not hindering their attainment,
appropriate for new business models, and capable of generating appropriate
Further, the complementary nature of a tax
system among relevant jurisdictions is important. That is, giving consideration
to how tax bases are determined within the national or global economy and the
effect that changes in a tax system have on other tax systems is important.
Consideration of fairness among jurisdictions is important, including revenue generation
for the appropriate government for activities that involve multiple
jurisdictions. In order for required spending to occur, governments need
assurance that tax revenues are available and stable. Tax revenues need to
support general government spending needs, thus for example, earmarking tax
revenues for a specific purpose warrants express justification.
Regarding stable revenues, typically, a mix of
taxes provides a more stable and flexible tax base because different types of
taxes are affected differently by changes in the economy. For example, in an
economic downturn causing unemployment, income tax revenues will decline. If
the government is collecting other types of taxes that are less affected by
decreased employment or if the effect will not occur as quickly, government
revenues in total are less adversely affected than if the government relied
solely on an income tax.
The effect of any tax law on business and
personal decisions should be kept to a minimum. The effect of tax law on a
taxpayer’s decisions regarding how to carry out a particular transaction or
whether to engage in a transaction should be kept to a minimum. The tax
system’s central aim should be to minimize distortions in the economy and to
interfere as little as possible with the decisions of free people in the
Any proposal or tax law should not influence
taxpayer decisions to engage in a transaction but the tax credit in this
proposal serves as a small incentive for corporations to insource jobs which
was a contradiction. Furthermore, capital expenditure tax incentives provided
at the state and local levels have a larger impact on decisions to insource
manufacturing jobs than the proposed tax incentive. Taking the proposed tax
credit for insourcing jobs would be part of short-term tax and business
planning, whereas exposure to exchange rate risks, rising labour and shipping
costs of overseas operations are ongoing business risks.
Since the tax credit incentive, in
combination with existing external factors and state and local tax incentives
described in the previous section, would play only a small role in the
decision-making process to insource jobs, the neutrality principle would be
satisfied. The removal of the tax deduction for outsourcing would only
eliminate one small incentive yet it still satisfies the neutrality principle.
Other more significant incentives such as low wage labour and capital
expenditure incentives would still exist. The current tax deduction for
outsourcing is at the full value of expenses paid or incurred. This means that
the deduction violates the neutrality principle by giving corporations a tax
incentive to outsource.
With most deductions and credits eliminated,
neutrality is likely better achieved than under our current Federal income tax
system. However, the system’s structure may affect some business decisions. For
example, independent contractors will appear to be a more optimal tax deduction
than employees, because payroll taxes and employee benefits are not deductible
by a business. Also, financing decisions will likely be affected by the no
deductibility of interest expense.
For example, whenever a
government wants to collect more revenues, it raises the excise taxes on liquor
and cigarettes, the so-called “sin taxes” because alcohol and tobacco are
presumed bad for the health and the high taxes are supposed to discourage
people from consuming them. Very high taxes on liquor and cigarettes may just
encourage smuggling and illicit trade. Taxes are simply passed on by business
to consumers who ultimately bear the brunt of it. Consumers, however, will
always seek the option of buying cheaper goods, irrespective of source. That’s
where smuggling comes in, from which government derives no revenue.
In Malaysia, excise duty increased from 2001 to 2009 at a compound
annual growth rate of 21 percent per annum. This is almost 10 times higher than
the inflation rate, which rose at just 2.3 percent a year. Excise revenue
increased during this period but much lower than expected. The steep and
continued rise in prices led to the rapid emergence of smuggling, which
exploded between 2004 and 2009, reaching an estimated 38 percent of the market,
equivalent to 9 billion sticks. This is the highest recorded level of illegal
cigarettes in the history of Malaysia and probably the highest recorded
anywhere in the world.
TRANSPARENCY AND VISIBILITY
Taxpayers should know that a tax exists and
how and when it is imposed upon them and others. A good tax system requires
informed taxpayers who understand how taxes are assessed, collected, and
complied with. Visibility enables individuals and businesses to know the true
cost of transactions and to understand how tax burdens affect them and the economy.
It also enables them to see what their total tax liability is and to which
level of government it is being paid. When a tax is not visible, it is easily
retained or raised with little, if any, awareness among taxpayers about how the
tax affects them. . If taxpayers cannot clearly see their tax burdens, they
view the entire system as unfair.
The way to implementing the transparency and
visibility principle is by report on tax incidence, especially taxes ultimately
paid by people who are not directly levied. Some taxpayers have come to believe
that they are entitled to a lower tax bill and resist in the only way they can
in terms by exerting more effort to find ways of reducing their tax bills,
legitimately or otherwise. These efforts put additional pressure on our
self-assessment system that depends heavily on taxpayers’ willingness to
In recent times, transparency in financial reporting has
become a top priority, recognized even in the mainstream media. Transparency in
financial reporting by public companies is measured by the extent to which
financial information about a company is available and understandable to
investors and other market participants. Transparency in tax law should be
measured by how easily taxpayers can determine whether and how any particular
tax provision and the tax statute as a whole affects their tax burden.
transparency of the tax law should result in a system that is and is perceived
by taxpayers as being fairer, enhance the efficiency of administering the tax
system, decrease tax evasion, increase taxpayer and tax practitioner certainty
in tax planning and compliance and reduce tax return error rates.
POSSIBLE AND APPROPRIATE, BASE TAXES ON BENEFITS RECEIVED
makers should always strive to enact fees or taxes that are directly related to
the costs of the benefits provided to the people paying them. Of course, most
government services are more general in nature and broadly beneficial to
society as a whole, which means they can’t readily be tied to identifiable
taxpayers or groups of taxpayers.
The benefits principle states that people should pay taxes based on the
benefits that they receive from government services. For instance, excise taxes
on gasoline are used to build roads and bridges. However, taxes on income and
investments are based on the ability to pay.
For example, in the ways of implementation of
this principle through base fees on full costs of providing government
services, the government are impose fees on tax service especially for
immigrants. Service tax can be explained by legislated tax at rate 6% which
effective from January 2011 imposed under the Service Tax Act 1975. This is
imposed by businesses in the hospitality industry under license by the Customs
Department. The Service Tax license with the name, address and the license
number is to be displayed prominently in the licensed premises. The service tax
collected by the business is paid to the government once every two month.
immigrants will be charged as out-patient department as RM 15.00 while the
specialist clinic referred by Government Medical Officer is RM 60.00 for first
visit and RM 10.00 for subsequent visit excluding charges for investigation.
For the clinic visit after discharged from ward, there will be fees on tax
service as RM 10.00 for all visit excluding charges for investigations and
Investigation will be charged to first class rate.