This article is relevant for candidates preparing for the FTX (MYS) Foundations in Taxation exam. It addresses the income tax administrative provisions for individuals and companies, with a focus on areas which are frequently examined. The article is based on prevailing laws as at 31 March 2022.
Tax administration generally refers to provisions in relation to the submission of tax returns, assessments, payments, appeals against assessments and penalty provisions in relation to non-compliance of a taxpayer’s obligations under the Income Tax Act 1967 (ITA). Under the self-assessment system, taxpayers are required to self-assess and submit their tax return form based on their own computation of chargeable income and income tax payable. The Director General (DG) is deemed to have made an assessment on the day the income tax return is submitted. The income tax return is also deemed to be a notice of assessment which is deemed to be served on the taxpayer on the day the DG is deemed to have made the assessment.
Individuals
Every individual who has chargeable income for a year of assessment (YA), shall furnish a tax return in the prescribed form. This also applies to non-residents who have Malaysian derived income. Form B is used where an individual has business income while Form BE is used where an individual receives only non-business income (such as employment, rental, interest, etc.)
The deadlines for submission of tax returns for individuals are as follows:
Illustration 1
Heng received employment income of RM90,000 for the period 1 March 2021 to 31 December 2021. Since Heng has chargeable income for YA 2021, he is required to file a form BE not later than 30 April 2022.
Illustration 2
Simon has RM260,000 statutory income from his sole proprietorship business for YA 2021. Since Simon has income from business, he is required to file a form B for YA 2021 not later than 30 June 2022.
Companies
Companies and limited liability partnerships are required to file tax returns within seven months from the end of the accounting period, which constitutes the basis period for the YA. An income tax return for a YA shall specify the chargeable income and the amount of income tax payable (if any) and such other particulars as required by the DG. The prescribed form to be filed for a company is Form e-C by electronic transmission – ie e-filing. E-filing is mandatory for companies. The return furnished by a company shall be based on financial statements made in accordance with the requirements of the Companies Act 2016.
The deadline to submit the tax return is also the deadline to pay the balance of tax payable to make up for any shortfall in instalment payments as explained below.
Illustration 3
Tico Sdn Bhd (financial year-end 31 December), which operates a travel agency, has an adjusted business loss of RM450,000 from its business for YA 2021, because of the downturn in the travel business during the Covid-19 pandemic. Tico Sdn Bhd is required to file Form e-C via e-filing by 31 July 2022.
Illustration 4
Rico Sdn Bhd (financial year-end 30 September) has statutory income of RM1,400,000 for YA 2021. Rico Sdn Bhd is required to file Form e-C by 30 April 2022 – ie within seven months from the end of the financial year-end of 30 September 2021.
Students should pay particular attention to the financial year-end stated in the question when determining the deadline to file a company’s tax return.
Under the self-assessment system applicable to both individuals and companies, no physical notice of assessment is issued to the taxpayer upon the furnishing of a tax return. A physical notice of assessment is only issued in the following circumstances:
The DG is deemed to have made an assessment (known as a deemed assessment) on the taxpayer based on the tax return furnished in accordance with sections 77 or 77A of the ITA. The tax return submitted is deemed to be a notice of assessment and is deemed to have been served on the taxpayer on the day the DG is deemed to have made the assessment.
Illustration 5
MITA Sdn Bhd (financial year-end 31 August) submitted its tax return for YA 2021 on 30 March 2022, reporting income tax payable of RM350,000. What is the date of the assessment and the date of the notice of assessment?
The deemed date of the assessment and the deemed date of the notice of assessment is 30 March 2022.
Where a person (an individual or company) is aggrieved against his own deemed assessment or an assessment raised by the DG, he may appeal to the Special Commissioners of Income Tax (SCIT). Any appeal against a deemed assessment can only be made where a taxpayer is aggrieved with a tax treatment in a public ruling or any practice of the DG prevailing at the time the assessment. This must be done using the prescribed form (Form Q), stating the grounds of appeal, within 30 days from the service of the notice of assessment or the deemed assessment. In legal terms, the 30-day calculation starts from the day after the service of the notice. The appeal is submitted to the DG for review. The review by the DG must be carried out within 12 months from the date of a valid appeal. Only where the DG and the taxpayer are unable to reach an agreement, is the appeal forwarded to the SCIT.
Illustration 6
Assuming the facts in Illustration 5, if MITA Sdn Bhd is aggrieved with the deemed assessment (dated 30 March 2022) and wishes to appeal in view of having adopted a position in the tax computation which is in line with the IRB practice as outlined in its public ruling (but with which the company disagrees), what is the due date by which MITA Sdn Bhd should appeal?
The appeal should be lodged by 29 April 2022, being 30 days from 31 March – ie the day after the assessment is deemed served. When answering this question, it is not sufficient to state that the appeal ‘should be made within 30 days’. Students should state the actual date – ie 29 April 2022, to be awarded full marks.
Illustration 7
Li Mei, a Malaysian resident, operates a sole proprietorship business and prepares accounts to 31 December every year. The tax return for YA 2021 was submitted on 3 May 2022.
What is the deadline for Li Mei to submit an appeal in relation to the tax return for 2021?
Li Mei should appeal by 2 June 2022 – ie 30 days from 4 May 2022, the day after the deemed service of the notice of assessment.
Individuals
(a) Individuals earning employment income will be subject to monthly tax deduction (MTD) under section 107 of the ITA. If the taxpayer meets the conditions outlined in section 77C of the ITA, this deduction can be treated as final tax and the person need not file a tax return.
(b) Individuals in receipt of business income will be subject to bi-monthly income tax instalment payments (as estimated by the DG) under section 107B of the ITA.
(c) Any balance of income tax payable, as determined upon submission of the income tax return, is due to be paid under section 103 of the ITA as follows:
Illustration 8
Ravi runs a sole-proprietorship business which closes its accounts on 30 September 2021. Which income tax return form should Ravi submit to the DG, and by when, for YA 2021?
The prescribed form which Ravi should submit for YA 2021 is Form B, by 30 June 2022.
Companies
Companies are required to furnish by way of electronic transmission an estimate of tax payable in the prescribed form (Form e-CP 204), not later than 30 days before the beginning of the basis period.
For a company with a 12-month basis period, the estimate of tax payable must be paid in 12 equal monthly instalments by the 15th day of every calendar month beginning from the second month of the basis period for which the estimate is furnished. The tax estimate may be revised upwards or downwards in the sixth and ninth months of the basis period using Form e-CP 204A. The Company is not required to give any reasons for the revision. Thereafter, the amount of the remaining tax instalments will be adjusted in equal amounts based on the remaining months.
For a newly-commenced company which is a small or medium enterprise (SME), the requirement to provide an estimate of tax is waived in respect of the first YA and the immediately following YA. An SME is a company which is resident and incorporated in Malaysia, and which, as at the beginning of any basis period for the aforementioned first two years of assessment, has a paid-up ordinary share capital of RM2.5 million or less. A company does not qualify as an SME if either its holding company, its subsidiary, or a fellow group company, has paid-up ordinary share capital of more than RM2.5 million as at the beginning of the relevant basis period for a YA.
In the case of a company (other than an SME) which first commenced its operations in a particular YA, and its basis period is not less than six months, the estimate of tax payable must be furnished within three months from the date of commencement of operations, as provided under section 107C of the ITA. In this case, the payment of instalments will commence from the sixth month of the basis period for the YA in respect of which the estimate has been furnished.
Illustration 9
Bulky May Sdn Bhd is a Malaysian resident company that operates a logistics business and prepares accounts to 31 December every year.
Required:
In relation to Bulky May Sdn Bhd, for YA 2022, state:
(a) By when the company should submit its estimate of tax payable.
(b) The due date for the first and last instalment payments.
(c) In which months any revision of the estimate of tax payable may be made.
(d) The prescribed forms which should be used to submit the estimate, and the revised estimate, of tax payable.
Answers:
(a) 1 December 2021, ie., not later than 30 days before the beginning of the basis period (1 January 2022 – 31 December 2022).
(b) The due dates are 15 February 2022 (ie beginning from the second month of the basis period) and 15 January 2023 (ie the final month in the 12-month payment schedule).
(c) Revisions can be made in the sixth and ninth months of the basis period – ie June and September 2022.
Note: If the revision is made after the 15th of the month, which is the due date for payment, the required adjustment will be made to the instalment payments for the remaining number of months, excluding the month in which the revision is made (also see Illustration 11, which shows the alternative situation of a revision being made before the due date for payment, on the 10th of June in this case).
(d) Form e-CP 204 for the first or original estimate and Form e-CP204A for revised estimates.
Illustration 10
Freedom Sdn Bhd, with a paid-up ordinary share capital of RM3 million, commenced business on 1 April 2021 and closed its first set of accounts on 31 December 2021. The company submitted its estimate of tax payable of RM90,000 for YA 2021 on 15 April 2021.
What is the due date for the first instalment payment and the amount of the monthly instalment payable by Freedom Sdn Bhd?
The due date for the first instalment is 15 September 2021 – ie in the sixth month of the basis period. The amount of the monthly instalment is RM10,000 (RM90,000/9 months).
A company’s actual tax liability is determined upon the submission of its tax return (Form e-C) based on the tax computation for the relevant YA. The balance of tax payable is the difference between the total monthly instalment payments (Form e-CP 204 estimate) and the actual tax payable as computed in the tax computation / return. Where the actual tax liability for the YA exceeds the tax estimate, resulting in an underestimation of more than 30%, a 10% penalty is imposed on the underestimated amount in excess of the 30% buffer.
The deadline to pay the balance of income tax payable is the same as the deadline to submit the tax return.
Students should take note that the basis period (as determined based on the financial year-end) and the tax return submission deadline must firstly be correctly determined to answer questions in relation to:
Illustration 11
Perak Sdn Bhd is a resident investment holding company in Malaysia. It prepares its accounts to 31 December annually. For YA 2022, the initial estimate of tax payable prepared and submitted by the company was RM120,000. Due to the expected poor performance of its investments, the company revised its estimate of tax payable on 10 June 2022 to RM60,000.
Required:
(a) State the due date for Perak Sdn Bhd (PSB) to furnish its estimate of tax payable to the DG for YA 2022.
(b) Compute PSB’s monthly tax instalment payments for YA 2022.
(c) State how many times, and when, PSB may revise its estimate of tax payable for YA 2022.
(d) Compute the revised monthly tax instalment payment of PSB for YA 2022.
Answers:
(a) By 1 December 2021 (ie no later than one month before the commencement of the basis period).
(b) RM10,000 (RM120,000 /12 months).
(c) PSB can submit revised estimates twice, ie., in the sixth and ninth months.
(d)
|
RM |
Revised estimate of tax payable |
60,000 |
Tax instalments paid to date (February to May 2022) |
(40,000) |
|
20,000 |
Revised tax instalments (RM20,000/8 remaining months) |
2,500 |
Illustration 12
SR Sdn Bhd was incorporated on 15 April 2021 with a paid-up ordinary share capital of RM5 million and commenced its business on 1 May 2021. The company prepares its first set of accounts to 31 December 2021. On 1 July 2021, the company submitted its estimate of tax payable of RM20,000 and did not submit any revised estimate thereafter. On 5 May 2022, the company submitted its income tax return for YA 2021, computing a chargeable income of RM150,000.
Required:
(a) Compute the balance of tax payable by SR Sdn Bhd (SRSB) for YA 2021.
(b) State the due date for the payment of the balance of tax payable by SRSB for YA 2021.
(c) Compute the penalty for under-estimation of tax, if any, for YA 2021.
Answers:
(a) Balance of tax payable
|
RM |
Chargeable income |
150,000 |
|
|
Income tax payable at 24% |
36,000 |
Less: estimate of tax payable |
(20,000) |
Balance of tax payable |
16,000 |
(b) 31 July 2022
(c) Penalty for under-estimation of tax
|
RM |
Balance of tax payable |
16,000 |
Less: 30% of tax liability (30% x RM36,000) |
(10,800) |
|
5,200 |
Penalty at 10% |
520 |
Tax administration provisions are generally not complex and as such, well prepared candidates can do well in this area of the syllabus.
Written by a member of the FTX (MYS) examining team