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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