Mathematics notes, chapter 4
Consumer Mathematics: Taxation
Textbook Mathematics Form 5 (DLP), pages 94–121
What this chapter covers
- Explain the purpose of taxation and how the government uses tax revenue (4.1.1)
- Describe the main taxes in Malaysia and the legal and financial consequences of tax evasion (4.1.2)
- Calculate income tax, monthly tax deduction, road tax, property assessment tax, quit rent and sales and service tax (4.1.3)
- Solve problems involving taxation, including joint and separate assessment (4.1.4)
4.1Purpose of taxation
Taxation is the collection of money from individuals and companies by the government. The money pays for the country's development and for services such as education, healthcare, national security and welfare. Every tax is collected under an Act approved by Parliament.
| Purpose | What it means | Example |
|---|---|---|
| Source of government revenue | Pays for running the country, development projects and redistributing income to reduce inequality | Building hospitals and schools |
| Tool for government policy | Tax is set to support a policy | Tax relief for parents' medical expenses encourages a caring society; Real Property Gains Tax (RPGT) discourages excessive property speculation |
| Control of sales of goods or services | Tax makes some goods less attractive | Tobacco, alcohol and gambling taxes |
| Financial tool | Helps the government stabilise the economy | Changing tax rates in the annual budget |
Tax revenue is spent on education, healthcare, social welfare, infrastructure and public facilities, agriculture and industry, national security and defence, and development. Paying tax honestly is a compulsory duty of every citizen.
Siti works as a clerk. She thinks her pay is too low to be taxed, so she has never reported her income. Is she acting responsibly?
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No. She must check whether her income is high enough to be taxable (an employee earning RM34 000 a year after EPF deduction must register a tax file). Failing to report taxable income is tax evasion and reduces money for national development.
4.2Types of tax and tax evasion
| Tax | Charged on | Collected by | Main consequence of evasion |
|---|---|---|---|
| Income tax | Income of salaried individuals and companies | Inland Revenue Board (IRB / LHDN) | Fine and penalty on the tax undercharged (200% or 300%); possible imprisonment |
| Road tax | Owners of vehicles | Road Transport Department (JPJ) | Fine of not more than RM2 000 for using a vehicle without valid road tax |
| Property assessment tax | Houses, commercial and industrial buildings and vacant land | Local authority | Notice (Form E), then detention warrant (Form F) and seizure of movable property |
| Quit rent | Owners of land (agricultural, corporate, with buildings) | State Land Office | Notice of claim (Form 6A), then the land can be seized |
| Sales and service tax | Taxable goods (once, at manufacture or import) and taxable services. Most businesses with taxable sales above RM500 000 a year must register (RM1 500 000 for food and beverage providers) | Royal Malaysian Customs Department (JKDM) | Fine of 10 to 20 times the tax, or imprisonment up to 5 years, or both |
Self-assessment: a taxpayer works out his or her own income tax for the previous year, files the Income Tax Return Form (ITRF) and keeps all documents for 7 years. Deadlines: 30 April (no business, form BE) and 30 June (with business, form B). Tax is paid in a lump sum or through monthly tax deduction (PCB).
Penalty figures can change from time to time. Learn the pattern: which tax, who collects it, and what happens if it is not paid.
State one difference between quit rent and property assessment tax.
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Quit rent is charged on land and collected by the State Land Office. Property assessment tax is charged on buildings and properties and collected by the local authority (it pays for rubbish collection, drains and parks).
4.3Income tax calculation
Chargeable income = total annual income − tax exemption − tax relief.
Income tax payable = base tax + tax on the next balance − tax rebate.
Income tax payable = base tax + tax on the next balance − tax rebate.
- Total annual income includes wages, salary, bonus, dividends, interest and rentals. Items such as transport allowance and employer's medical benefits are not taxable.
- Tax exemption: gifts and donations to approved organisations.
- Tax relief: items such as individual (RM9 000), EPF and life insurance (limit RM7 000), medical insurance (limit RM3 000), lifestyle (limit RM2 500). Claim only up to the limit.
- Tax rebate: RM400 if chargeable income does not exceed RM35 000, plus any zakat or fitrah paid.
| Chargeable income (RM) | Base tax (RM) | Rate on the next balance |
|---|---|---|
| 0 – 5 000 | 0 | 0% |
| 5 001 – 20 000 | 0 | 1% of income above 5 000 |
| 20 001 – 35 000 | 150 | 3% above 20 000 |
| 35 001 – 50 000 | 600 | 8% above 35 000 |
| 50 001 – 70 000 | 1 800 | 14% above 50 000 |
| 70 001 – 100 000 | 4 600 | 21% above 70 000 |
| 100 001 – 250 000 | 10 900 | 24% above 100 000 |
Rates for Assessment Year 2020 (textbook p. 105); the textbook table continues to 30% above RM2 000 000.
Example (textbook p. 106): chargeable income RM47 531, zakat RM280
Range 35 001 – 50 000: base tax RM600.Next balance: (47 531 − 35 000) × 8% = RM1 002.48
Income tax = 600 + 1 002.48 − 280 = RM1 322.48
A rebate is taken off the tax, a relief is taken off the income. If the rebate is bigger than the tax, the tax payable is RM0. The excess is not refunded.
Example (textbook p. 115): chargeable income RM30 633, zakat RM230
Rebate = 400 + 230 = RM630Tax = 150 + (30 633 − 20 000) × 3% − 630 = 150 + 318.99 − 630 = −161.01, so tax payable is RM0.
Total income RM80 000, donation RM1 000, total tax relief RM17 000, zakat RM600. Find the income tax payable.
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Chargeable income = 80 000 − 1 000 − 17 000 = RM62 000.
Tax = 1 800 + (62 000 − 50 000) × 14% − 600 = 1 800 + 1 680 − 600 = RM2 880.
Tax = 1 800 + (62 000 − 50 000) × 14% − 600 = 1 800 + 1 680 − 600 = RM2 880.
Monthly tax deduction (PCB)
Employers deduct PCB from salary during the year. At assessment compare the total PCB with the tax payable.
- Tax payable > PCB: insufficient payment = tax − PCB, paid to the IRB.
- Tax payable < PCB: excess deduction = PCB − tax, refunded by the IRB.
Example (textbook p. 108)
Tax payable RM2 419.50, PCB RM180 a month. Total PCB = 180 × 12 = RM2 160. Insufficient by 2 419.50 − 2 160 = RM259.50.Joint and separate assessment
Joint assessment: the wife's income is added to the husband's (or the reverse) and one form is filed. Separate assessment: each spouse files his or her own form.
Most reliefs have a claim limit, and in joint assessment each relief is claimed once. The incomes are combined and pushed into a higher tax band, so separate assessment is often cheaper when both earn. Always calculate both and compare.
Joint: add the incomes, subtract exemptions once, subtract each relief once (within its limit). Separate: do two normal calculations. Then compare the totals.
4.4Other taxes
| Tax | Formula | Example |
|---|---|---|
| Road tax | Base rate + progressive rate × (engine cc − lower limit of band) | 1 997 cc: 280 + (1 997 − 1 800) × 0.50 = RM378.50 |
| Property assessment tax | Rate × annual value, where annual value = monthly rental × 12 | 5% × RM6 580 = RM329 a year, RM164.50 a half-year |
| Quit rent | Rate per unit area × land area | RM0.43 × 130 m² = RM55.90 a year |
| Service tax | 6% of the charge (sales tax is 5%, 10% or other rates) | 2 nights at RM240: 480 × 6% = RM28.80 |
For road tax, only the cc above the band's lower limit attracts the progressive rate. Do not multiply the whole engine capacity.
Example (textbook p. 117): electricity bill
Service tax of 6% applies only to usage above 600 kWh. For 650 kWh, the last 50 kWh at RM0.546 cost 50 × 0.546 = RM27.30. Service tax = 27.30 × 6% = RM1.64 (to the nearest sen).A car of 1 750 cc is in the band RM200 + RM0.40 for each cc above 1 600 cc. Find the road tax.
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200 + (1 750 − 1 600) × 0.40 = 200 + 60 = RM260.
Problem-solving routine
- Understand: list what is given (income, exemption, relief, rebate, PCB).
- Plan: chargeable income first, then find the band, then tax, then rebate.
- Carry out the calculation, keeping sen in tax amounts.
- Conclude with units (RM) and compare with PCB if asked.