SCOPE OF CHARGE

•Section 3 ITA 1967:

  “ Subject to and in accordance with this Act, a tax to be known as income tax shall be charged for each YA upon the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia.”

•Therefore, income tax liability arises when:

  i. the transaction is ‘income’ in nature   and   such   income is accrued in or   derived from Malaysia; or

  ii. the transaction is ‘income’ in nature   and   it is received in Malaysia from   outside Malaysia

•Income tax would be imposed by reference to a YA upon a person’s income. Such person is known as chargeable person.

Self- Assessment System

•A method whereby a taxpayer is responsible for calculating his own tax and making payment within the specified period.

•Taxpayers are given the onus to self- assessing and self-paying their income tax.

•Based on the “SELF ASSESS, PAY AND FILE’ concept (IRB Annual Report, 1998,p.100)

•Self Assessment is a total process change from the previous formal assessment system. Under the formal assessment system, taxpayers are required to declare their incomes in the Return Form, submit the Return Form to the Inland Revenue Board (IRB) and the IRB will then raise the assessment.

•The Notice of Assessment is sent to the taxpayer and based on the tax raised in the Notice of Assessment, payment must be made accordingly.

•Consider as the first step towards modernizing the national tax administration system.

•Embrace to the new system known as ‘Electronic Tax Filing System (e-filing)’ as to integrate with the electronic government concept.

•Introduce for corporate taxpayers on 2004 and for individuals on 2006.

•Under the Self Assessment System, taxpayers are still required to complete and submit Return Form by the required dates. Taxpayers will have to calculate their own tax and make payment of the full amount.

•In the case of an employee, the Schedular Tax Deduction Scheme will continue to apply i.e. tax will be deducted from the monthly salary and remitted to the IRB by the employer.

•The purpose of Self Assessment is to modernize and upgrade the tax administrative system in the country. It creates an efficient tax system, speeds up the collection of tax and improves the rate of tax compliance.

 

DEVELOPMENT & CHANGES IN MALAYSIAN TAXATION

•Prior to 2000, income tax is assessed on the income earned in the preceding year and is assessed by the IRB according to the official assessment system; and known as preceding year assessment (PYA)

•Effective on year 2000 onwards, Current Year Assessment (CYA) system being used to assess the income tax based on the income earned in the current year. It means that income derived in year 2000 will be assessed and liable to tax in the year 2000.

•Due of that, Self- Assessment System (SAS) being introduced; where the taxpayer works-out and pays his own income tax.

•Why?

  i. to improve voluntary tax compliance

  ii. To reduce administrative cost/ lessen burden of the IRB

  iii. To enable prompt collection of taxes

OBJECTIVE OF TAXATION

•‘Taxes are what we pay for a civilized society’ (Justice Holmes)

•Taxation :

•Avenue for government to raise funds to finance public expenditures, such as healthcare, education and national defence.

•Principal means by which governments can attempt to redistribute of income and wealth in building a civilized society through various social allocations.

•It then redistributed amongst the public in such a way to build public amenities, and to provide support to pensioners, the unemployed, the sick & the welfare beneficiaries.

•Taxation acts a tool of good governance, allowing economies to grow while helping to improve society as a whole.

•Moreover, taxation also used to broader socio-economic purpose (for e.g. to maximize economic stability in order to reduce inflation, unemployment, etc.)

•Therefore, it is meant for revenue, growth and equity.

Benefit in kind (BIK)

What is Benefit in kind?
a. Paragraph 13(1)(b) of the Act provides that the gross income of an employee from an employment also includes any amount equivalent to the BIK provided to the employee by/on behalf of his employer to be personally enjoyed by that employee.

b. BIKs are benefits not convertible into money, even though they have monetary value. The phrase "not convertible into money" means that when the benefit is provided to the employee, that benefit cannot be sold, assigned or exchanged for cash either because of the employment contract or due to the nature of the benefit itself.

c. All BIKs received by an employee are taxable except:
i. medical, dental or chld-care benefit

ii. a benefit consisting of
    aa) leave assage in Malaysia of not more than 3 times in one calendar year; or
    bb) oversea leave passage of not more than once in any calendar year limited to a maximum amount of RM 3,000.
The exemption of this benefit is only applicable if it is provided to the employee and members of his immediate family.

iii. benefit used by the employee solely for purposes of performing his employment duty.

d. Non-taxable benefits include:-
i. Goods and services offered at discounted prices.
ii. Dental benefit
iii. Childcare benefit
iv. Food and drink provided free of charge
v. Free transportation between pick-up points or home and the place of work (to and fro)
vi. Insurance premium which are obligatory for foreign workers as a replacement to SOCSO contributions
vii. Group insurance premium to cover workers in the event of an accident.

Tax Audit

Under the Silf Assessment System, tax audit is a primary activity of the Inland Revenue Board of malaysia. It aims to enhance voluntary compliance with the tax laws and regulations. A taxpayer selected for an audit does not necessarily mean that the taxpayer has committed an offence.

What is a tax audit?
A tax audit is an examination of a taxpayer's business records and financial affairs to ascertain that the amount of tax reported and paid are in accordance iht tax laws and regularations. The IRB carries out two (2) tyoes of audit, namely desk audit and field audit.

Desk audit
a. A desk audit is carried out at the IRB's office. Desk audits are normally concerned with straight forward issues or tax adjustments which are easily dealt with via correspondence. A taxpayer may be called for an interview at IRB's office if any additional information is required.

b. It involves checking all information on income and expenses as well as various types of claims mae by a taxpayer in his income tax return.

c. Specific desk audit cases can be referred for field audit action where the taxpayer will be informed through a field audit notification letter as part of the normal process of commencing the field audit.

Field Audit
A field audit is one that takes place at a taxpayer's premise. It involves the examination of the taxpayer's business records. In the case of a sole-proprietorship or partnership, if the taxpayer's business records are imcomplete it may involve the examination of non-business records such as [ersonal bank statements, etc. A taxpayer will be given notice prior to a field audit.

Objective of Tax Audit
The main objective of tax audit is to encourage voluntary compliance with the tax laws abd regulations and to ensure that a higher tax compliance rate is acheved under the Self Assessment System. In this regard, the audit officer is required to ensure that the correct amount of income is reported and the right amount of tax is paid in accordance with the tax laws and regulations.

Form E and EA/EC

Every employer is required to prepare ad submit a return each year (Form E) to the Director General not later than 31 march in the year immediately following the relevant year containing;
a. Number of employees
b. Number of employees subject to schedular tax deductions scheme.
c. Number of new employees employed.
d. Number of employees resigned.
e. Number of employees resigned and left Malaysia.
f. Such other details as may be required by the Director General.

Every employer shall for each year prepare and render to his employees a statement of remuneration (Form EA/EC) of that employee by end of February in the year immediately following the relevant year containing;-
a. relevant particular of the employee.
b. full amount of gross employement income.
c. pension,annuity or periodical payments.
d. total amount of taxdeductions made on employement income.
e. compulsory contribution to EPF or any other approved fund or scheme.
f. details of payment of arrears for prior years employement income.
g. exempt allowances perquisitions, gifts and benefits.
h. such other particulars as may be required by the Director General.