 KEEPING PROPER RECORDS IS VITAL TO FACILITATE TAXPAYERS TO HAVE BETTER CONTROL OF THEIR TAX AFFAIRS.  EVERY PERSON CARRYING ON A BUSINESS INCLUDING SMEs IS REQUIRED TO KEEP PROPER RECORDS.  MALAYSIAN INCOME TAX ACT – TAX PAYERS (COMPANY, NON-COMPANY) IS REQUIRED TO KEEP AND RETAIN IN SAFE CUSTODY SUFFICIENT RECORDS TO ENABLE THE INCOME OR LOSS FROM THE BUSINESS FOR THE BASIS PERIOD FOR ANY YEAR OF ASSESSMENT TO BE READILY ASCERTAINED. TAX COMPLIANCE DEPARTMENT 2

 FROM THE COMPLIANCE POINT OF VIEW SMEs REPRESENT THE HIGH RISK GROUP BECAUSE THEYARE NUMEROUS, THEIR RECORD KEEPING INCOMPLETE AND NOT CAPABLE FOR EASY VERIFICATION AGAINST THIRD PARTY DATA  THEIR COMMERCIAL SET-UPS CAN LACK THE WELL DEVELOPED STRUCTURES FOR RECORD KEEPING AND INDEPENDENT AUDIT OF ACCOUNTS THAT HELP TO MINIMISE RISK OF UNDER-REPORTING  TAX ADMINISTRATION SHOULD HAVE STRATEGIES TO ENSURE THAT SMEs UNDERSTAND THEIR OBLIGATION UNDER REVENUE LAWS. TAX COMPLIANCE DEPARTMENT 3

 NO COMMON DEFINITION OF SMEs – BENCHMARK AGAINST: 1) ANNUAL SALES TURNOVER 2) NUMBER OF FULL-TIME EMPLOYEES OR 3) SHAREHOLDERS’ FUNDS.  IN MALAYSIA SMEs WILL BE BASED ON 2 CRITERIA: 1)NUMBER OF EMPLOYEES OR 2)ANNUAL SALES TURNOVER  DEFINITION WILL APPLY FOR FOLLOWING SECTORS: 1) PRIMARY AGRICULTURE 2) MANUFACTURING (INCLUDING AGRO-BASED) 3) MANUFACTURING – RELATED SERVICES (MRS) 4) SERVICES (INCLUDING INFORMATION COMMUNICATIONS TECHNOLOGY) TAX COMPLIANCE DEPARTMENT 4

Sector / SizePrimary Agriculture Manufacturing (including Agro- Based) & MRS Services Sector (including ICT) MicroLess than 5 employees SmallBetween 5 & 19 employees Between 5 & 50 employees Between 5 & 19 employees MediumBetween 20 & 50 employees Between 51 & 150 employees Between 20 & 50 employees TAX COMPLIANCE DEPARTMENT 5

Sector / SizePrimary Agriculture Manufacturing (including Agro- Based) & MRS Services Sector (including ICT) MicroLess than RM200,000 Less than RM250,000 Less than RM200,000 SmallBetween RM200,000 & less than RM1 million Between RM250,000 & less than RM10 million Between RM200,000 & less than RM1 million MediumBetween RM1 million & RM5 million Between RM10 million & RM25 million Between RM1 million & RM5 million TAX COMPLIANCE DEPARTMENT 6

 A FULL SET OF BOOKS OF ACCOUNT RECORDING ALL BUSINESS TRANSACTION SRECEIPTS AND PAYMENTS OR INCOME AND EXPENDITURE  INVOICES, VOUCHERS, RECEIPTS AND SUCH OTHER DOCUMENTS NECESSARY TO VERIFY THE ENTRIES IN ANY BOOKS OF ACCOUNT  ANY OTHER RECORDS SPECIFIED BY THE DIRECTOR GENERAL TAX COMPLIANCE DEPARTMENT 7

 IF COMPUTERS ARE USED TO RECORD THE TRANSACTIONS, ORIGINAL SOURCE OF DOCUMENT SHOULD BE RETAINED IN THEIR ORIGINAL FORM.  WHERE ORPGINAL DOCUMENTS ARE IN ELECTRONIC FORM THE DOCUMENT CAN BE RETAINED IN SUCH FORM.  THE RECORD SHOULD BE KEPT IN AN ELECTRONICALLY READABLE FORM TAX COMPLIANCE DEPARTMENT 8

 SETTING UP SUFFICIENT RECORDS FOR ALL BUSINESS TRANSACTIONS  MAINTAINING THE RECORDS THROUGHOUT THE YEAR  RETAINING THE RECORDS FOR AS LONG AS NECESSARY TAX COMPLIANCE DEPARTMENT 9

 TO MONITOR THE PROGRESS OF BUSINESS  ALL THE INFORMATION NEEDED IS READILY AVAILABLE  WHEN THE BUSINESSES ARE SELECTED BY IRBM FOR AUDIT IT WILL BE QUICKER AND LESS DISRUPTIVE IF ALL INFORMATION IS EASSY TO FIND  EXPEDITE REFUNDS IF DUE TAX COMPLIANCE DEPARTMENT 10

 SEC. 82 ITA 1967  KEEP & RETAIN FOR A PERIOD OF 7 YEARS [SEC. 82(a)]  ISSUED & KEEP PRINTED SERIALLY NUMBER RECEIPTS [SEC 82(b)]  NOT FURNISHED RETURN - RECORDS ARE TO BE KEPT FOR A PERIOD OF 7 YEARS [82(1A)]  ELECTRONIC RECORDS – READABLE FORM, READILY ACCESSIBLE & CONVERTIBLE INTO WRITING [82(7)]  BUSSINESS IN MALAYSIA – KEPT & RETAINED IN MALAYSIA [82(8)]  PUBLIC RULING NO.4/2000  RELATING TO MAINTENANCE OF SUFFICIENT RECORDS TAX COMPLIANCE DEPARTMENT 11

 NO INCENTIVES OR REWARDS OFFERED.  FAILURE TO KEEP SUFFICIENT RECORDS [SEC 119A]: 1) FINE BETWEEN RM300 & RM10,000 OR 2) A PERIOD OF IMPRISONMENT OF UP TO ONE YEAR OR TO BOTH TAX COMPLIANCE DEPARTMENT 12

 DEVELOP THE SENSE OF RESPONSIBILITY AMONG TAXPAYERS TO KEEP PROPER RECORDS DUE TO THE SPIRIT OF SELFASSSESSMENT  SELF ASSESSMENT STILL NEW IN MALAYSIA - AN ADVISORY APPROACH NEEDED TO BE DONE IN EDUCATING TAXPAYERS ON THE IMPORTANT OF BOOK KEEPING.  IN FUTURE – MAY BE CONSIDERED TAX COMPLIANCE DEPARTMENT 13

 ISSUED PUBLIC RULING – PUBLIC RULING NO. 4/2000  TAX EDUCATION PROGRAM:  TAX AUDIT ACTIVITY TAX COMPLIANCE DEPARTMENT 14

 PUBLIC RULING NO. 4/2000 DATED 30 JUNE 2001 – KEEPING SUFFICIENT RECORDS (COMPANIES & CO- OPERATIVES) :  APPLIES IN RESPECT OF SEC. 82 ITA  EFFECTIVE YA 2001 ONWARDS  CONSIDERS: 1) WHAT CONSTITUTES SUFFICIENT RECORDS NEEDS TO KEEP 2) THE CONSEQUENCES OF FAILING TO KEEP SUFFICIENT RECORDS. TAX COMPLIANCE DEPARTMENT 15

 SEMINAR  ROAD SHOW  TALK / BRIEFING  JOINT-VENTURE WITH PARTIES E.G. MALAYSIA CHINESE / MALAY CHAMBER OF COMMERCE TAX COMPLIANCE DEPARTMENT 16

 CONDUCTED FIELD AUDIT  ALLOWED TO EXAMINE ALL BUSINESS RECORDS AND NON-BUSINESS RECORDS.  AUDITACTIVITIES CAN EDUCATE AND ENSURE PROPER RECORDS KEPT AND RETAINED ACCORDING TO IRBM REQUIREMENT.  REDUCE THE IRBM’S NEED TO RESORT TO INDIRECT METHOD OF DETERMINING INCOME TAX COMPLIANCE DEPARTMENT 17

 MIXED APPROACH NEEDED IN IMPROVING QUALITY & ACCURACY OF SMEs BOOK KEEPING.  MIXED APPROACH: 1) AUTHORITARIAN APPROACH – ENFORCEMENT ON RECORD KEEPING 2) TAX EDUCATION / TAX ADVISORY APPROACH WITH FRIENDLY, HELPFUL, SATISFACTORY SERVICES TAX COMPLIANCE DEPARTMENT 18

TAX COMPLIANCE DEPARTMENT 19