Table of contents

No Topic Page

1. Introduction 2

2. Assessment 3 - 6

3. Self-assessment system - individual 7 - 9

4. Self-assessment system - company 10 - 11

5. Collection and recovery 12 - 13

6. Appeals 14 - 15

7. Penalties and offences 16 - 18

8. Bibliography 19

9. Turnitin report

10. CD

11. Appendix

1

1.0 Introduction

A self-assessment is a system that emphasizes the taxpayer’s responsibility to report

their income and the need to determine their own tax liability. Tax in Malaysia is

charged based on territorial basis and principle source. The self-assessment system

(SAS) in Malaysia has begun since 2001. There are three types of taxpayer which is the

individuals, business and partnership. Companies are the first to be implementing the

self-assessment system in 2001 followed by the others in 2004. In Malaysia, individuals

who are liable to tax are required to declare his income to Inland Revenue Board of

Malaysia (IRBM) using the Income Tax Return Form (ITRF) (Self-Assessment:Alan

Yoon Associates:, 2010).

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2.0 Assessment

2.1 Types of assessment

a) Primary assessment

The primary assessment is the original assessment that contains all the relevant

particulars for the taxpayer in accordance to the tax authority’s requirement (Choong

, 2012). The Director General is in charge on accepting or refusing the form

submitted and determines the tax payable based on his conscience.

Any amendments can be made after the submission of the original form within six

month from the due date. It is only applicable if the form is submitted on time and self-

amendment being made once for each year of assessment (IRBM, 2014).

b) Reduced assessment

The taxpayer can appeal for a reduced assessment considering with valid and

acceptable evidence to reduce the amount of income tax charges. It can only be

achieved if both the taxpayer and Director General reach an agreement or the

appeal case is won at the court.

c) Additional assessment

There are certain cases in which the Director General will issue an additional

assessment which is when it is discovered that certain income has been mistakenly

omitted or not been taken into account in the original assessment or when there is

an error which requires the tax to be refunded (Choong , 2012).

d) Composite assessment

The composite assessment is issued when it is discovered that the taxpayer has

committed an offense. It is usually made after a tax investigation is conducted.

Normally, it comprise few years of assessment in which the taxpayer been giving an

incorrect information which resulted in an undercharge of tax. Once the composite

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assessment is issued, the taxpayer cannot appeal to the special commissioners as it

would be final and conclusive.

e) Increased assessment

An increased assessment is only issued when there is an increase in tax payable.

The increased assessment notice will only be issued when both party, the taxpayer

and Director General has reached an agreement or ordered by the Special

Commissioners or court. There will be no right to appeal once the agreement has

been made.

f) Advance assessment

The advance assessment is where the Director General is authorized to charge the

taxpayer in advance. When a taxpayer is about to terminate their business, the

Director General is allowed to evaluate in advance to prevent loss of income. Other

reasons includes where the taxpayer receives pensions, employment income and

upon leaving Malaysia for a long time (Choong , 2012).

g) Protective assessment

The protective assessment is issued when the taxpayer is suspected of

carelessness, scam or wilful default. The assessment is up to six years’ time limit

(Choong , 2012).

2.2 Tax authorities’ office

The Inland Revenue Board of Malaysia (IRBM) is responsible for assessing, collecting

and enforcing taxpayer tax’s liability. The agency acts as the main revenue for the

collection of direct taxes such as the Income tax, Petroleum (Income Tax), Real

Property Gains Tax, estate duty, stamp duties and such other taxes (IRBM, 2014).

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2.3 Service of notice

The taxpayer will receive a notice relating to tax matters which is sent by the post to the

taxpayer registered office, last known address or any person authorized by it. To ensure

that the taxpayer receives the letter, the Internal Revenue accounts the letter sent and

received to the taxpayer in a record book as a proof. Penalties will be imposed to the

non-compliance. Individuals who did not inform the IRB upon changing his address will

be at risk of the law stating that the notice have been delivered (Choong , 2012).

2.4 Director General’s power on assessment

Based on section 90 and 91 of the Act, the Director General has the power to raise or

amend assessment according his best judgment which is defined as;

1) To exercise their powers in good faith

2) Judgment must be supported with facts

However, it is not the director’s duty to conduct an investigation in search of the relevant

evidence as it is the taxpayer responsibility to provide returns for the tax authorities to

base their judgment. Reasons for such estimate are not necessarily given to the

taxpayer unless it is requested by the Special commissioner or the court (IRBM, 2014).

2.5 Unlimited assessment

The Director General has the authority to raise assessment for all previous years with

no time limit if it is discovered that;

I. The taxpayer or on behalf of other person has been committing any form of fraud

or wilful default

II. Negligent cases

The Director General can only raise the assessment to the taxpayer or individuals with a

solid proof claiming that the taxpayer has committed the offences (Choong , 2012).

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2.6 IRB practices

Most of the documents sent by the taxpayer are through courier service. Dockets which

are stated with contents of the documents, tax reference number and company name

are only acceptable as evidence to IRBM.

Example;

Grand Milennium Sdn. Bhd. C1XXXXXXX-XX Form C YA 20XX and Form R YA

20XX

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3.0 Self-assessment system – individual

The individual taxpayer consists of employees, sole-proprietors and individual partners.

However, not every individual are liable to pay tax. Individual having annual income

more than RM26, 501 (after EPF) is eligible to tax (IRBM, 2014) (pwc, 2014). The

assessment year for individuals follows the calendar year (1st Jan-31st Dec).

3.1 Responsibility of the individuals

The self-assessment system in Malaysia is based on Pay, Self-Assess and File

concept. Individuals are required to revise, compute the income tax and account for his

tax liability.

Section 82 of the Income Tax Act 1967, an individual with employment or investment

income is required;

- To keep and retain sufficient records for period of 7 years

- To keep printed receipts with serial numbers for sale of goods exceeding

RM150,000 or provision of services exceeding RM100,000 in value

The reason to retain the documents is to facilitate field audit to ensure that tax liability

has been computed and the amount paid has been properly accounted for.

3.2 Submission of return

The submission of the tax return is on a year later. For example, a taxpayer will have to

submit their 2012 assessment on 2013.

Malaysian resident have to submit forms before;

I. BE form (no business source in the year of assessment) – 30th April every year

II. B form (having business source in the year of assessment) – 30 th June every

year

III. P form (partnership) – 30th June every year

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For non-residents they have to submit M form within;

I. Without business source – 30th April every year

II. With business source – 30th June every year

3.3 Payment of income tax

The tax rate is differentiated by the residency status.

I. Resident- charged on variable rate ( the more you earn, the higher your tax)

II. Non-resident – charged based on flat rate

If an individual is staying in Malaysia for more than 182 days for YA, he/she is entitled

for a resident status (MIDA, 2014).

The government has announced a tax rate reduction of 1% for all taxpayer with a

chargeable income of RM50, 000 in the Malaysian budget 2013. Non-residents will be

charged at a flat rate of 26%. The table of tax rate for YA 2013 and 2014 is shown in the

appendix.

There are two means for an individual to pay their tax;

I. By Scheduler Tax Deduction (STD) - Tax will be deducted monthly by the

employer if the individuals are having employment income.

II. By instalment – individuals also can pay their tax liability in 6 bi-monthly

instalments

Individuals having more than one source of income will have to pay using both methods.

For example, Miss Maya is working at a bank as finance manager. At the same time,

she is also running a café in Kota Damansara which is operated by her relatives. As she

is employed, her employment income is deducted by STD method however, she still

need to pay her tax on business source by instalment method.

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3.4 Deemed assessment

The Director General shall be deemed to make an assessment on the day the return is

submitted. It is to confirm that the return filed is accepted as true and correct (Choong ,

2012).

3.5 Amendment of return

Taxpayer can amend their tax return within six months from the submission date

(Choong , 2012). The amended return shall state the additional amount of income

chargeable, tax payable, informations and penalty for late payment.

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4.0 Self-assessment system- companies

A company is liable for tax if its management and control is exercised in Malaysia. In

other words, a company is considered as a tax resident if the director’s meetings are

held in Malaysia. The assessment for companies follows the basis of financial year

(KPMG, 2013). For example, if the company closes their accounts on 31st May each

year, the YA 2013 would be from 1st June 2012 – 31st May 2013.

4.1 Payment

Amount of tax charged is based on the company chargeable income;

I. On the first RM500,000 – 20%

II. In excess of the next RM500,000 – 25%

Payment of corporate income tax is based on instalment payment (CP204). A notice of

payment (CP205) and 12 month payment slip (CP207) will be issued by the tax

authorities after the company has filed the return to ITRF. Monthly instalment must be

made before 10th of every month and late payment will be charged a penalty of 10%

(IRBM, 2014).

4.2 Revision of estimate

With regard of the SAS implemented, a company is required to file and pay their tax

liability. Therefore, revision of estimate is essential to review the estimated tax payable

with the actual tax paid. If the difference in estimated and actual exceeds the 30%

margin of error, penalties will be imposed to the company (IRBM, 2014). The objective

is to avoid overpayment or underpayment of tax.

4.3 Submission of return

Company has to submit the income tax return form within 7 months after the close of

accounting period (IRBM, 2014).

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4.4 Notice of assessment

Under section9 (1), The Director General is deemed to have made an assessment on

the chargeable income sent by the company. A notice of assessment detailing the

amount of income tax liability is sent to the taxpayer after they have submitted their

return. The company has a right of appeal within 30 days of making an assessment.

Any objections can be made on the same day of filing of return.

4.5 Commencement of business

A Small medium enterprise (SME) who first commences their business does not have to

estimate and pay their income tax payable for the period of 2 YAs (Choong , 2012). The

advantage given is to expedite the growth of SME in Malaysia.

For a new company with paid up capital exceeds RM2.5 million, they are required to

provide their income tax estimate (CP204) within 3 months from the commencement

date.

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5.0 Collection and recovery

5.1 New application

For business and self-employed individuals, they are required to pay tax through the bi-

monthly payment scheme. A notice of instalment payment CP500 can be applied from

the IRBM branches. Taxpayer without instalment scheme will have to settle off their tax

liability within 30 days from the date the Notice of Assessment been sent (IRBM, 2014).

5.2 Scheduler tax deduction system (STD)

The system is implemented on 1st January 1995. It collects tax strictly from employees

on monthly basis. The tax liability amount varies as it is based on current income or

known as ‘Pay as You Earn’ (PAYE) scheme. STD is subject to employees’ normal

remuneration and it is mandatory. The employer is responsible to submit their

employees’ personal information. The payroll system used by the employer should

comply with the monthly tax deduction set by the tax authorities. The employees have to

make a comparison between the monthly tax deduction and actual tax payable that is

supposed to be paid. The difference of overcharge or undercharge must be informed to

the IRBM to gain refunds or payment (Choong , 2012).

5.3 Recovery

I. Recovery from wife - the husband is responsible for tax payment in the case of

joint assessment.

II. Recovery from husband – the husband income to be jointly assessed with his

wife.

III. Recovery from person leaving Malaysia – a person cannot leave Malaysia unless

he pays all the tax, sums and debt (Choong , 2012).

5.4 Tax administration

Payment can be made at the IRBM payment counter which is in Jalan Duta, Kota

Kinabalu and Kuching. To ease tax collection, IRBM has made an agreement with

financial institutions such as Bank Islam, CIMB Bank, Maybank and Public Bank. This

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agent accepts payment through internet; over the counter and ATMs. Post offices also

provide payment for income tax but limited to cash basis. It is applicable for both

individuals and companies (IRBM, 2014).

5.5 Compensation for overpayment of tax

When the payment is more than the tax imposed, the taxpayer is entitled for a refund. If

the account is not credited automatically, the taxpayer will have to inform the IRBM

branch.

Reimbursement will be received within;

1) 30 days from the date of submission (done through e-filing)

2) 3 months from the submission date (done manually)

-

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6.0 Appeals

6.1 Rights to appeal

According to the law [s99 (1)], each taxpayer has the right to appeal against an

assessment issued by the tax authorities under certain conditions;

- Unsatisfied with the estimated notice of assessment or additional assessment

made.

- Personal reliefs have not been given appropriately.

- Certain claimable expenses or relief has been overlooked.

- Error made by the Internal Revenue Board of Malaysia.

6.2 Scope of assessment

A taxpayer has the right to appeal against the assessment issued by the tax authorities.

No assessment will be submitted for a particular YA if they have no chargeable income.

A taxpayer with no chargeable income who still receives notice of assessment can

make an appeal to the special commissioners within 30 days.

6.3 Proper forum

A taxpayer must follow a proper procedure when doing an appeal. Failure to do so can

result in rejected appeals (Choong , 2012).

6.4 Finality of assessment

An appeal is valid within 30 days of the date of deemed assessment. Should there be

no appeals done by the taxpayer within that specified date, the assessment is

considered as final and conclusive (IRBM, 2014). However, the taxpayer can apply for a

time extension if additional time is required to extract and gather information.

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6.5 Process of appeals

Taxpayer who is displeased by the assessment made can write to the IRBM branch

issuing it within 30 days from the notice date. If both the taxpayer and the IRBM have

reached an agreement, the appeal is settled. However, if the taxpayer is still unsatisfied

with the decision, the case will be forwarded to the Special Commissioners and the

appeal continues to the High Court if no agreement is made.

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1st stage: Internal Revenue Board of Malaysia branch

(IRBM)

2nd stage: Special Commisioners of

Income Tax

3rd stage: High Court

7.0 Penalties and offences

7.1 Types of penalties and offences

Offences With prosecution Without prosecution

1

- Failure to provide a return

[ss77(1), 77A(1)]

- Fail to give notice of

chargeability [s77(3)]

Fine between

RM200 – RM2,000

or six month

imprisonment or both

[s112(1)]

Penalty up to three

times the amount of

tax [s112(3)]

2

Incorrect return

- Omitting or understating

income

- Giving an incorrect

information which can

affect the chargeability of

tax [s113(1) and (2)]

Fine between

RM1,000-RM10,000

and penalty equal to

double the amount of

tax being

undercharged

[s113(1)]

Penalty equal to the

tax undercharged

[s113(2)]

3

Wilful evasion (s114)

- An act with intent to evade

or assist any other person

to evade tax wilfully

Fine between

RM1,000-RM20,000

or three years

imprisonment or

both; plus three

times the tax

undercharged

penalty [s114(1)]

Not applicable

4Understatement of tax [s114(1A)]

Fine between

RM2,000-RM20,000

or three years

imprisonment or both

[s114(1)]

Not applicable

5 Leaving Malaysia without payment of

tax (s115)

Fine between

RM200-RM2,000 or

Not applicable

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six month

imprisonment or both

(s115)

6

Obstructions of officers (s116)

- In the course of their duties

by refusing them entry into

any land, building or place;

any books or documents;

refuses to answer

questions related to tax

purposes.

Fine between

RM1,000-RM10,000

or one year

imprisonment or both

(s116)

Not applicable

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Breach of confidence (s117)

- communicates confidential

material to another person

- giving access to

confidential material

Maximum fine of

RM4,000 or one year

imprisonment or

both (s117)

Not applicable

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Offences by officials (s118)

- officials who acts in his

own interest;

- eg: withholds a portion of

tax or penalty collected;

makes false reports or

returns

Maximum fine of

RM20,000 or three

years imprisonment

or both (s118)

Not applicable

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Unauthorized collection of tax or

penalties (s119)

Maximum fine of

RM20,000 or three

year imprisonment or

both (s119)

Not applicable

10 Failure to keep records (s119A) Fine between

RM300-RM10,000 or

one year

Not applicable

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imprisonment or both

(s119A)

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Other offences

a) failure to comply with a notice

[s120(1)(a)]

b) failure to comply with an order

made [s120(1)(b)]

c) failure to give notice by

employer [s120(1)(c)]

d) contravention of the duty

imposed by the act [s120(1)

(d)]

e) failure to comply with the

directions to deduct tax (s107)

f) failure to comply with a

direction given on retention of

money concerning departing

or terminating employees

[s83(5)]

g) failure to provide an estimate

of company’s tax (s107c)

h) failure to submit form R

[s108(5)]

i) failure to comply with monthly

tax deduction scheme

Fine between

RM200-RM2,000 or

six month

imprisonment or both

[s120(1)]

Not applicable

Source from (Choong , 2012)

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Bibliography

Choong , K. F. (2012). Malaysian Taxation; Principles and Practice 18th edition. Kuala

Lumpur: Info World.

IRBM. (2014, February 26). LHDN; Internal Revenue Board of Malaysia. Retrieved from

Internal Revenue Board of Malaysia: http://www.hasil.gov.my/goindex.php?

kump=5&skum=1&posi=9&unit=1&sequ=1&cariw=appeal

KPMG. (2013). 2013-Thinking Beyond Borders. KPMG International.

MIDA. (2014). Malaysian Investment Department Authority. Retrieved from Malaysian

Investment Department Authority: http://www.mida.gov.my/env3/index.php?

page=taxation

pwc. (2014). Price Water Coopers. Retrieved from Price Water Coopers:

http://www.pwc.com/my/en/

Self-Assessment:Alan Yoon Associates:. (2010). Retrieved from Alan Yoon Associates::

http://alanyoonassociates.com/self/index.html

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