Malaysia’s self-assessment system (SAS) began in 2001 for companies, and in 2004 for individuals. It is based on the concept of ‛self-assess, file and pay’. Under the SAS, taxpayers have the responsibility to calculate and then pay any taxes which are due to the government. It is an act that should be carried out voluntarily by everyone who is liable for tax. Nevertheless, to ensure compliance, the Inland Revenue Board (IRB) carries out tax audits on a selective basis to verify the information provided by taxpayers.
The SAS is a total process change from the previous formal assessment system. Under the formal system, taxpayers are required to declare their income in the Return Form, submit the Return Form to the Inland Revenue Board (IRB) and 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.
Under the SAS, companies are still required to complete and submit the Return Form C by the required dates. However, under the SAS, no notice of assessment will be sent to the taxpayers since the Director General of Inland Revenue (DGIR) is deemed to have made an assessment based on the tax return furnished.
In addition, the SAS for companies is not limited to filing of the Return Form only. The SAS includes the requirement to estimate the tax to be paid for the current year and make monthly payments accordingly.
The following article explains the obligations of companies in complying with the income tax filing deadlines under the SAS.
1. Estimate of tax payable and payment by instalments
Under the SAS, every company is required to determine and submit in a prescribed form (Form CP204) an estimate of its tax payable for a year of assessment, 30 days before the beginning of the basis period.
A Sdn. Bhd. has a financial year ending on 30 June. Its basis period for YA 2010 will be from 1 July 2009 to 30 June 2010 (12 months).
It would be required to submit an estimate of its tax payable for YA 2010 by 1 June 2009 (ie thirty days before the beginning of the basis period).
However, when a company first commences operations (i.e. during the first basis period), the estimate of tax payable must be submitted to the IRB within 3 months from the date of commencement of its business and thereafter no later than 30 days before the beginning of the basis period.
B Sdn. Bhd. intends to have a financial year ending 31 December 2010. It will commence operations on 1 February 2010. Its basis period will be 1 February 2010 to 31 December 2010 (11 months).
It would be required to submit an estimate of its tax payable for YA 2010 by 30 April 2010 (ie within three months from the date of commencement of operations).
A company is still required to submit the prescribed Form CP204 within the stipulated deadline even if it expects its estimate of tax payable to be Nil.
With effect from Y/A 2008, where a small and medium enterprise (SME) first commences operations in a year of assessment, the SME is not required to furnish an estimate of tax payable or make instalment payments for a period of 2 years beginning from the year of assessment in which the SME commences operations.
A ‘SME’ is defined as a company having a paid-up capital of not exceeding RM2.5 million at the beginning of its basis period.
With effect from Y/A 2011, where a company first commences operations in a year of assessment and the basis period for that year of assessment is less than 6 months, that company is not required to furnish an estimate of tax payable or make instalment payments for that year of assessment.
A SME which is exempted from furnishing an estimate of tax payable mentioned above is advised to submit the prescribed Form CP204 notifying the IRB of its SME status without having to state the amount of estimate of tax payable for that particular year of assessment to avoid any penalty for under-estimation of tax or penalty for non-submission being wrongly imposed by the IRB.
Any company which, without reasonable excuse fails to submit the estimate of tax payable for a year of assessment shall be guilty of an offence and upon conviction, be liable to a fine ranging from RM200 to RM2,000 or face imprisonment for a term not exceeding 6 months or both.
2. Quantum of estimated tax payable
The estimate of tax payable submitted for a particular year cannot be less than the revised estimate or the estimate of tax payable (if no revised estimate was submitted) for the immediately preceding year of assessment.
With effect from Y/A 2006 and subsequent years, the estimate of tax payable for that year cannot be less than 85% of the revised estimate of tax payable for the immediate preceding year of assessment or if no revised estimate is furnished, cannot be less than 85% of the estimate of tax payable for the immediate preceding year of assessment.
3. Payment of tax
When the estimate of tax payable has been submitted to the IRB, the company is required to remit this amount to the IRB in equal monthly instalments according to the number of months in its basis period. For example, if a company has a 12-month basis period, the estimate of tax payable must be paid over a 12-month instalment scheme.
C Sdn. Bhd.’s financial year end is 30 June 2010 with an estimated tax payable for YA 2010 of RM120,000. Its basis period for YA 2010 is from 1 July 2009 to 30 June 2010. The estimated tax payable of C Sdn. Bhd. will have to be settled by 12 monthly instalments of RM10,000 each. The first instalment will be due on 10 August 2009.
However, where a company first commences operations (i.e. during the first basis period); its first instalment will commence from the 6th month of the basis period.
D Sdn. Bhd. will commence operations on 1 February 2010 with 31 December 2010 as its financial year end. Its basis period will be 1 February 2010 to 31 December 2010 (11 months). D Sdn. Bhd. will be required to pay its estimated tax payable by 11 monthly instalments. The first instalment will be due on 10 July 2010.
Next: Income Tax Deadlines For Companies (Part 2)