Masters of Financial PlanningTaxation Planning

Tax Administration of Self Assessment System

By: Associate Professor Dr. GholamReza Zandi

zandi@segi.edu.my

Self Assessment System

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Self assessment system was implemented on companies from

2001 and individuals and other taxpayers from 2004.

Under the SAS, taxpayers estimate the tax payable for the

following year of assessment and pay the tax in installments.

At the end of the basis period, they determine their taxable

income, compute the tax liability and submit the appropriate tax

returns.

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Companies under SAS:

Provide estimate of the tax payable one month prior to the

commencement of the business

Estimates shall not be less than 85% of its previous year’s

estimate

May revise estimates in the sixth and ninth month of the basis

period

File tax return within seven months of the financial year end

Self Assessment System

Self Assessment for Individuals

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Taxpayers estimates income tax payable for current Year of

Assessment.

Taxpayer with business source pays tax to IRB (either in 6 bi-

monthly installments or through the Scheduler Tax Deduction

system (STD); and employees by monthly installments.

Taxpayer could revises the estimates of the tax payable two

times during the year.

Self Assessment for Individuals (Cont’d)

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Corporate and other taxpayers submit the returns

within seven months from the end of the financial

period; employees submit the tax return (Form B)

to the IRB by 30 April of following year.

Amount of final tax (i.e. difference between the

actual and the estimated tax) should be paid within

30 days.

Duties of A Taxpayer

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Every person carrying on a business is required to maintain

proper books of accounts & receipts for 7 years (sec 82 ITA).

Individuals with employment and other investment income

must maintain proper records for 7 years from the relevant

YA (sec 82A).

A taxpayer needs to notify in writing to the IRB of any change

of address within 3 months of the change (sec 89).

Duties of An Employer

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An employer who knows that its employee is leaving Malaysia

for more than 3 months must notify the IRB [sec 83 (4)].

Under the Scheduler Tax Deduction system, employers must

deduct appropriate tax of its employees and remit it to IRB by

the 10th day of each calendar month in respect of tax for the

preceding month.

Duties of An Employer (Cont’d)

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At the end of the year, the employer will indicate the total tax

deducted for each employee under the STD in their respective

Forms.

Employers must file a Return of Remuneration by 31 March of

the following year and furnish employees with a Statement of

their remuneration.

Powers of The Inland Revenue Board

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The Inland Revenue Board (IRB) has the power to direct

taxpayers to furnish information relating to the tax return or

produce any books, accounts or information related to the

taxpayer’s assets and liabilities for examination purposes (see

sections 78, 79 and 87 ITA).

The IRB has power to full and free access to all buildings, places,

books, documents and other papers of the taxpayer for any and

all purpose under the ITA.

Any person failing to comply with the provisions of the tax law

without ‘reasonable excuse’ is guilty of an offence under sec 120.

Estimate of Tax Payable

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Companies under self assessment

Company, trust and co-operative societies must

furnish IRB with an ‘estimate of income tax payable for

year of assessment (in Form CP204) not later than 30

days before the beginning of basis period.

The estimated amount must NOT be < 85% of the tax

payable for the previous YA.

Estimate of Tax Payable (Cont’d)

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New SMEs are not required to provide estimates of

income tax payable for the first 2 years after

incorporation.

IRB will issue taxpayers a Notice of Payment

(Form CP205) and a 12 monthly payment slip

(CP207) before commencement of company’s

basis period.

Payment of Tax

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Every person (other than company, trust, co-op

society) is required to pay his tax by installment as

directed by the DGIR.

The amount of tax payable is estimated based on

the previous year’s assessment. Payment is made

in 6 bi-monthly installments (except employees who

are under the Scheduler Tax System).

Payment of Tax (Cont’d)

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A penalty of 10 % is imposed on amount unpaid (i.e. beyond

30 days from due date). When a taxpayer underestimates his

or her tax liability by more than 30% compared to the final

assessment, a 10% penalty is imposed on the difference.

Company Installment Schemes

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A Company must pay tax in 12 equal monthly installments

accompanied by the payment slip, with payment due on the 10th of

every month starting from the 2nd month of the Company’s basis

period.

Example

If accounting year end is 31 December, then basis period for YA 2012

is 1/1/2012 – 31/12/2012. Thus, installment starts on 10/2/12 and ends

on 10/1/2013]

Failure to pay tax installments by the 10th day of the following month

will carry a 10% penalty on amount unpaid [sec 107C (9)].

Revision of Estimates

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Company may revise the estimate of tax payable by submitting Form

CP204A to the IRB in the 6th month or 9th month or both months of the

Company’s basis period, resulting in tax payable for remaining

months of the basis period being revised upward/downward equally

[from the 6th or 9th month onwards].

Company must file tax return (Form C) within 7 months from the close

of the companies’ accounting year (end of basis period) (sec 77A).

In the above example, for YA 2012 tax return, the company has to

submit the tax return by 31 July 2013.

Penalty for Late Payment

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The difference between tax payable as in the tax return and the

installments paid, is due and payable on the last day of the 7th

month after the end of the companies’ accounting period, in

order to avoid the 10% or 10% + 5% penalty on amount unpaid.

A 10% penalty will be imposed on the excess of 30% difference

between the original/revised estimate of tax and the actual tax

payable, upon submission of the tax return.

Deemed Assessment

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Under the self assessment system, the tax return submitted or

electronically filed by a taxpayer is deemed to be a notice of

assessment on the day the return is submitted.

Where a person has furnished a return to the DGIR, the DGIR is

deemed to have made on that day an assessment on the

chargeable amount; and the tax payable by that person [sec

90(1)].

If the assessment is not contested by the taxpayer (sec 97) within

a prescribed time, it will become final & conclusive.

Public Rulings

A Public Ruling is a statement issued by the IRB to provide

guidance to the taxpaying public as well as to the officers of the

Inland Revenue Board. It sets out the interpretation of the DGIR

in matters of policy and procedures that are to be applied.

The IRB has issued 67 Public Rulings to-date.

In 2012, IRB issued 12 new Rulings.

The End