Specialized in Finance, B.Com – Specialized in Accounting ......According to Section 77(1) of the...

Ibrahim Sameer (MBA - Specialized in Finance, B.Com – Specialized in Accounting & Marketing)

Introduction The Inland Revenue Board (IRB) or Lembaga Hasil

Dalam Negeri (LHDN) responsible for collecting all

Direct Tax.

Introduction The Royal Malaysian Customs Department (RMCD)

responsible for collecting all Indirect Tax.

Inland Revenue Board (IRB) IRB was established in accordance with the Inland

Revenue Board of Malaysia Act 1995.

The main reason for setting up IRB is to improve the

quality and effectiveness of tax administration in

the country.

Functions of IRB Developing and executing tax policy in Malaysia.

Contacts with taxpayers (personal and companies).

Educating taxpayers through its counters and in mass

media.

Ascertaining and nurturing public compliance.

Functions of IRB Managing taxpayers’ databases.

Sending tax returns to taxpayers.

Assessing tax returns.

Collection of tax payments.

IRB Operational Objectives

Definition of Tax Return According to Section 77(1) of the Income Tax Act 1967,

the director general may require you to forward a

return of income in a prescribed form. This form

contains information which may be required for the

purpose of ascertaining your chargeable income for

a year of assessment.

Tax Return Individual taxpayers, normally need to submit tax

return not later than April 30 every year of

assessment.

E-Filing services allow the taxpayers to submit their

tax return forms electronically via the internet. This

service is available for free.

Classification of Tax Return Form

Tax Assessment There are two types of assessment.

Official Assessment System (OAS)

Self Assessment System (SAS)

Official Assessment System (OAS) Official assessment system simply means the

assessment is made by the IRB and a notice of

assessment (also known as Form J) is sent to the

taxpayer stating the amount of tax due for a particular

year of assessment. Taxpayer would pay based on this

assessment.

Official Assessment System (OAS) From the year of assessment 2004, the Official

Assessment System (OAS) is no longer practised for

individual taxpayers. They are now assessed under the

new tax system known as the Self Assessment System

(SAS).

Self Assessment System (SAS) SAS simply means the taxpayer makes the

assessment. This system assumes taxpayer has the

appropriate tax knowledge to calculate income tax.

Self Assessment System (SAS) Under the SAS, the revenue authorities would be

involved in an expanded programme of checking and

verifying tax returns on a post-assessment basis.

This is particularly by way of tax audits and the

implementation of a penalty system to enforce

compliance with tax law.

Responsibilities of Individual Taxpayer

Income Declaration

Change of

Address

Tax Payment

Income Declaration Based on Section 77, individual taxpayers are required

to give full information regarding their income for

each year of assessment. They are also responsible for

submitting their returns to the IRB within 30 days

after receiving the return forms.

Change of Address Its taxpayer responsibility to inform IRB regarding

the change of address. Taxpayer should note that a

new correspondence address, either temporary or

permanent, must be given to IRB.

Tax Payment Make payment to the IRB in the event the monthly tax

deduction falls short of the tax assessed.

Responsibilities of Employers Based on Section 83, an employer is responsible to

inform the IRB regarding the following:

Responsibilities of Employers

Responsibilities of Employers From 1 January 1995, an employer is responsible to

deduct an amount of tax from their employees'

monthly salary. This deduction is done through

Schedular Tax Deduction (STD) under the Income Tax

(Deduction from Remuneration) Rules 1994.

Types of Assessment

Original Assessment Prior to 2004, taxpayers who submit their returns to

IRB (if accepted by the director general) will prepare

an assessment to determine the chargeable income

and the amount of tax payable. This net amount is

derived after deducting any rebate and tax credit

which may be applicable.

Additional Assessment “Additional assessment” is applicable only when there

is an extra charge to be paid by taxpayers.

Additional assessment normally applies if only the

following conditions occur:

Additional Assessment

Reduced Assessment According to Dictionary.com Unabridged (v 1.1),

“reduce” can be defined as an act to bring something

down to a smaller extent, size, amount or number.

The director general may, at his discretion, make a

reduced assessment where the taxpayer's chargeable

income is less than what has been assessed.

Reduced Assessment The amount of tax reduced or discharged can either be

refunded to the taxpayer or carried forward to set off

against the taxpayer's future tax payable. However, in

normal practice, tax credit will be given.

Composite Assessment According to Dictionary.com, “composite” could be

defined as something which is made up of disparate or

separate parts or elements.

Composite Assessment Composite assessment is an assessment issued by the

director general when a person fails to furnish a return

in accordance to Section 77(l). In addition, individuals

who fail to give notice of chargeability, or make

incorrect returns on behalf of himself or another

person will also be issued a composite assessment.

Increased Assessment An increased assessment is issued when the taxpayer

reaches an agreement with the director general during

the review of assessment; or when the special

commissioner or the court has decided that the issue is

in dispute and resulted in an increase in the tax

payable. Most importantly, as a taxpayer, you have no

right to appeal against increased assessment.

Advanced Assessment The director general has the power to assess the

taxpayer in advance to prevent loss of revenue. This

power is given under Section 92 of the Act. Section 92

provides that an advance assessment may be issued to

a person under specified situations as the following:

Advanced Assessment Where a person ceases to possess a business source in

a year of assessment.

Where a person is about to leave Malaysia and his

sources of income are likely to cease upon leaving.

Where a person ceases to possess a source of income;

Protective Assessment Protective assessment is issued in order to prevent an

assessment from being barred (forbid the entrance) by

time. This usually happens when the Inland Revenue

Board’s officer carries out a tax investigation.

Collection & Recovery of Tax From year assessment 2004, IRB has changed from the

OAS to the SAS for individual taxpayers. Under the

SAS, the taxpayers are required to estimate their

income tax payable, pay income tax, revise estimation

and submit the return form within the specified time.

Payment of Tax Tax must be paid within one month (30 days) after

taxpayer have furnished his tax return. If taxpayer fail

to settle the tax within the specified time, a penalty of

10% on the amount paid will be imposed on him.

Methods of Colleting Tax Deduction of Tax from

Emolument and Pensions

Schedular Tax Deduction (STD)

Payments by Instalment Scheme

Deduction of Tax from Emolument & Pensions

Section 107 states that, the director general will direct

the person by whom the income is payable to deduct

taxes from any person who received income under

Section 4(e).

Schedular Tax Deduction (STD) IRB introduced STD in January 1995, in order to

overcome this problem and to facilitate the collection

of tax. This is a mechanism used by the tax authority

to collect taxes from employees on a monthly basis

despite that the employee has not submitted the

return.

Payments by Instalment Scheme In 1989, IRB has introduced one method to help

taxpayers which is known as the payment by

instalment scheme. This is a compulsory instalment

scheme which is applicable to all taxpayers except

employees under the STD.

Appeals If taxpayers are dissatisfied with the deemed notice

(An annual statement sent by revenue authorities to

taxpayers detailing the amount of income tax they

owe) of assessment, taxpayer have the right to make an

appeal.

Appeals The appeal must be made to the director general

within 30 days from the date of the notice of

assessment.

Offence & Penalties

Failure to Submit Return Form In accordance with Section 112, anyone who fails to

submit a return form within the time given or fails to

give notice that his/her income is subject to tax will be

liable to:

False, Understand or Incorrect Returns

Section 113, anyone who makes a false declaration or

submit an incorrect return by omitting or understating

any income which affects the chargeability to tax is

liable to:

Wilful Evasion (Section 114) Evasion defined as an act or instance of escaping,

avoiding or shirking something.

Section 114 states that whoever:

Wilful Evasion (Section 114) Shall be liable to:

Barred From Leaving Malaysia Under Section 115, a taxpayer who has been issued a

certificate in respect of Section 104 on recovery of tax

and is leaving or attempts to leave Malaysia without

paying the tax shall be liable to:

Other Offences (Section 120) Section 120, a person who fails to fulfil the director

general's requests, or fails to keep proper records or

fails to submit information regarding his employees

shall be liable to:

Q & A