Answer and Explanation:
The introduction of withholding tax in Malaysia serves several purposes and is based on certain rationales:
1. Tax Collection: Withholding tax is a mechanism employed by the government to ensure efficient and timely collection of taxes. By requiring certain payments to be subject to withholding tax, the government can collect tax revenue at the source, directly from the payer of income, rather than relying solely on the recipient to declare and pay the tax.
2. Compliance and Enforcement: Withholding tax helps enforce tax compliance by making it the responsibility of the payer to withhold and remit the tax on behalf of the recipient. This reduces the risk of tax evasion or underreporting of income by the recipient.
3. Simplified Taxation: Withholding tax simplifies the taxation process for certain types of income. Instead of individuals or businesses having to calculate and pay their own taxes on certain types of payments, the payer deducts the tax and remits it to the tax authorities. This simplifies the tax obligations for the recipient, especially in cases where the recipient may be non-resident or have limited knowledge of local tax regulations.
4. Protection of Tax Base: Withholding tax helps protect the tax base of a country by ensuring that taxes are collected on income generated within its jurisdiction, even if the recipient is a non-resident. This is particularly relevant for cross-border transactions and payments made to non-resident individuals or entities.
In Malaysia, withholding tax is applicable to various types of income, such as dividends, interest, royalties, and payments to non-resident service providers. The rates and specific rules for withholding tax are outlined in the Malaysian Income Tax Act.
In summary, the introduction of withholding tax in Malaysia aims to facilitate tax collection, enhance compliance and enforcement, simplify taxation, and protect the tax base. It ensures that taxes are withheld and remitted at the source, reducing the burden on the recipient and ensuring the government receives its due tax revenue.