I have come across many forums discussing this issue. Obviously many bloggers and website owners want to know this and turn to the internet (where else) to find the answer.
There are many opinions given in the forums and discussions. However, many opinions given are based on different individuals’ understanding (or misunderstanding) of the Income Tax Act (ITA).
Simply answering 'YES' or 'NO' is not enough, we have to understand why and justifications for our answer. However, if you are not bothered about the details, then I can tell you that in my opinion, it is 'NO'.
Why? Let's look at the ITA.
Section 3 of the ITA reads:-
“........ a tax to be known as income tax shall be charged for each year of assessment upon the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia.”
This implies that income from Google AdSense falls squarely under taxable income as it is clearly "income received in Malaysia from outside Malaysia".
HOWEVER, Para 28(1) of Schedule 6 of the ITA (tax exempt income) defines non-taxable income as:-
“..... income of any person other than ...company...derived from sources outside Malaysia and received in Malaysia."
Therefore, income from Google AdSense would have been taxable (as specified in Section 3), had it not been for Para 28(1) of Schedule 6 which clearly exempts it.