1. Tax Administration of Self Assessment System
Masters of Financial Planning
Taxation Planning
Tax Administration of Self Assessment System
By:
Associate Professor Dr. GholamReza Zandi

2. Self Assessment System
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.

3. Self Assessment System
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

4. Self Assessment for Individuals
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.

5. Self Assessment for Individuals (Cont’d)
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.

6. Duties of A Taxpayer
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).

7. Duties of An Employer
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.

8. Duties of An Employer (Cont’d)
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.

9. Powers of The Inland Revenue Board
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.

10. Estimate of Tax Payable
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.

11. Estimate of Tax Payable (Cont’d)
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.

12. Payment of Tax
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).

13. Payment of Tax (Cont’d)
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.

14. Company Installment Schemes
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)].

15. Revision of Estimates
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.

16. Penalty for Late Payment
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.

17. Deemed Assessment
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.

18. 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.

19. The End
End of Chapter 1.