TOPIC 1

INTRODUCTION TO MALAYSIAN
TAXATION SYSTEM
TOPIC 2 INDIRECT TAXES
TOPIC 3 INDIVIDUAL RESIDENCE STATUS
TOPIC 4 EMPLOYMENT INCOME
TOPIC 5 UNEARNED INCOME
TOPIC 6 PERSONAL RELIEF & REBATE
TOPIC 7 NON-RESIDENT RELIEF
TOPIC 8 BUSINESS INCOME
TOPIC 9 CAPITAL ALLOWANCE
TOPIC 10 PARTNERSHIP
TOPIC 11 INCOME TAX ADMINISTRATION

TOPIC OUTLINE:

OBJECTIVES OF STUDY:

11.1 Objective of Tax Administration

11.2 Tax Compliance Voluntary Compliance
11.3 Tax Administration
11.4 Tax Audit
11.5 Authority & Responsibility of Director General
of Inland Revenue (DGIR)
11.6 Taxpayers & Employers Responsibilities
11.7 Tax Compliance & Ethical Issues
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To introduce income tax administration

and identifying the level of compliance
degree
To determine the division of income tax
administration in respect of return form,
assessment, appeal and collection
To understand of audit system on
taxation
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11.2 Tax Compliance Voluntary Compliance

11.1 Objective of Tax Administration

The main objective of income

tax administration is to achieve
the maximum degree of
compliance to the ITA (total
compliance).

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Taxpayers will prepare and file the return

form to declare the actual income received.
The form will be submitted within certain
period.
Tax payment will be made immediately.
Employers will be acquired to hold or deduct
the tax from the employees income and remit
to the IRB (the schedular tax deduction
PCB).

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Towards achieving total compliance

Publicize through the media and opening counters
to give explanation on the tax payment procedure.
Administration on the tax law should be done
immediately and consistently.
Identifying those who do not comply with the tax
law and take appropriate action on them.
Improving the function of tax collection continuously
e.g. by widely using the schedular tax deduction.
Tax education through seminars, campaigns, Q&A
sessions on radio and TV, dialogues etc.
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11.3 Tax Administration

Divided into four parts:
1.
Returns
2.
Assessments
3.
Appeals
4.
Collections and recovery

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RETURNS

Notice of chargeability

Types of return forms:

B resident individuals with other
sources of income beside Employment
M non-resident individuals
C companies
C1 co-operatives societies
P partnerships
T trusts, deceased person estates, club,
association, societies and Hindu joint
family
E return by employers

Where a Return of Income Form has been issued

by the Director General
A taxpayer must complete it and return to DG within
30 days.
Where no Return of Income Form has been issued
to a taxpayer
He must within 14 days (by 14 April) after 31 March
in the year of assessment declare his liability to tax.
Where a taxpayer newly arrives in Malaysia
He must give notice of his chargeability to income
tax within 2 months of his arrival.

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11.6 Taxpayers & Employers Responsibilities

Time frame for submission

A return of income must be submitted to the
assessment branch of the IRB within 30 days
from the date of return.
The DG has the power to grant an extension
of time to file a return if the person can
provide reasonable cause.
In practice, an informal extension of time is
generally allowed up to 31 May each year.

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Responsibilities of employee
1. Notice of chargeability notify the DG
before 15 April of the following YA that he is
chargeable [sec. 77(2)].
2. The return issued to him must be completed
and submitted within the time allowed [sec.
77(1)].
3. Change of address employee has to
inform IRB in writing within 3 month of the
change.
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3.

Notice of cessation [sec. 83(3)] submit to IRB not

later than 1 month prior to the date of cessation of
employment using form CP22A. With effect from
1/1/97, employer is no longer required to give written
notice of cessation if the employee is subject to PCB,
or where monthly income of employee < minimum
amount subject to PCB, provided that it is known that
the employee is not retiring from any employment
permanently.

4.

Employees leaving Malaysia form CP 21 must be

submitted if employee is about to leave or intends to
leave Malaysia for a period exceeding 3 months.
Notification 1 month before departure and written
notice. No written notice if an individual is required to
leave Malaysia at frequent intervals in the course of
his employment.

Responsibilities of employer
Employer is required to file in the following
return:
1. Form EA/EC details of remuneration paid to
employee including contribution to EPF and
tax deducted under monthly deduction scheme
(PCB). EC is for government employees.
2. Notice of employee commencing
employment [sec. 83(2)] sent to IRB not
later than 1 month from commencement date
of employment form CP22.
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5. Retention of money employer required to

retain amount of money due to employee until
at least 90 days after the receipt by IRB of the
notification of cessation of employment.
6. Schedular tax deduction (PCB) employer
is required to withhold tax under the PCB
system. Each month, the employer is required
to deduct appropriate tax of the employees
and remit to the IRB not later of 10th day of
each calendar month in respect of tax in the
preceding month. At the end of the year, the
employer is required to make annual return
(form CP159) together with form E.

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Types of Assessment
1. Original assessment made in accordance to
the particulars provided by taxpayer or his agent in
the relevant return, but the DG can exercise his
discretion under these circumstances:
a) DGs judgement DG refuse to accept return
submitted and determine the amount of
chargeable income based on his best judgement
[sec. 90(1)(b)].
b) Non-submission of return the DG can
determine the chargeable income of the person
and make assessment accordingly [sec. 90(2)].
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11.5 Authority & Responsibility of Director General

of Inland Revenue (DGIR)

ASSESSMENT
An assessment An official act or process by which the
provisions of the Act are applied to the affair of a person to
ascertain the proper amount of tax payable by the person.
Responsibility for making assessments Is the Director
General
Basis of assessment Based on information provided by a
taxpayer or his agent in the relevant return of income ([if
DG not satisfied with the return or with any information
provided by a taxpayer he may proceed to make an
assessment to the best of his judgment] & [if person does
not deliver a return, an assessment is made by DG]).
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2. Additional assessment may be made under any one

of the following circumstances:
a) where there is additional chargeable income which
has not been taxed;
b) where the tax charged in the first assessment was
too low [this can happen when the first assessment
is estimated and facts known later indicate that a
further assessment is warranted];
c) where an over-repayment (refund) of tax has been
made;
d) where personal relief has been over-allowed or is
withdrawn.
- time limit to issue original and additional assessment:
within 6 years [sec. 91(1)].
- exception to 6 years (not applied): if DG prove fraud,
default or negligence, additional assessment can be
made any time [sec. 91(3)].

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3.

Advance Assessment (sec. 92)

The DG can issue advance assessment under the
following circumstances:
a) where a taxpayer ceases to trade or to be employed or
to carry on a profession or vocation. If the
assessments are raised in the appropriate year, the
taxpayer may not have the funds at that time to settle
his liability or it may be difficult to locate him. An
advance assessment would eliminate such problems;
b) where a taxpayer who has a Malaysian source income
is planning to leave Malaysia;
c) where employees who are in Malaysia for an unknown
period and are employed by persons who do not have
a permanent establishment in Malaysia, ie. Who have a
non-resident employer;
d) where the Malaysian income is derived by a taxpayer
who is a non-resident shipowner, charterer or operator
or an airline.

4. Protective assessment
- The DG issue this assessment to avoid
assessment becoming time barred.
- Thus, an assessment for the year 1999 would
become time barred if not issued before 31
December 2004 because it would fall outside
the six-year limit.
- Therefore, if a taxpayer is likely to incur a liability
for 1999 but the DG has not fully investigated
the case or ascertained the liability he will issue
a protective assessment before the end of 2004
to protect the loss of revenue.

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5.

Composite assessment (sec. 96A)

Issued when a taxpayer:
a) makes default in furnishing a return in
accordance with section 77(1);
b) fails to give notice of chargeability under
sec. 77(2) or (3);
c) makes an incorrect return by omitting or
understating any income;
d) gives any incorrect information affecting his
own chargeability.
- Normally are agreed between the DG and the
taxpayer before been issued.
- Thus, latter the taxpayer has no right to object or
appeal.
- Assessment is made after a tax investigation or field
audit is conducted and is discovered that the
taxpayer has committed an offence.

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6. Increased assessment [sec.101(8),(9)].

It will be issued where:
a) the taxpayer reach an agreement with the DG
during the review of assessment;
b) the Special Commissioners or the court had
decided the issue in dispute which resulted in
an increase in the tax liability.
- No right to appeal against an increased
assessment where there is an agreement
between taxpayer and the DG [sec. 102(3)].

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7. Reduced assessment
The DG may make a reduced assessment where:
a) the taxpayers chargeable income is less than
what has been assessed;
b) certain relief to which the taxpayer is entitled to
had not been deducted in his earlier
assessment.
- The amount of tax reduced or discharged can
either be refunded to the taxpayer or carried
forward to set off against the taxpayers future
tax payable.
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APPEALS
A taxpayer has the right to appeal by objecting to
the assessment made in writing (objecting within 30
days after the date of the assessment notice).
The limit 30 days could be extended if the DG
satisfied (reason of extension due to absence from
Malaysia, sickness or other reasonable cause).
If the DG refused to extend the time, within 21 days
of receipt of the notification, could request from the
Special Commissioners.
The decision by one of the Special Commissioners
to refuse or grant the extension is final.
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Finality of assessment
An assessment will become final and
conclusive when:
a) no appeal has been made within a
stipulated time given;
b) an appeal has been made, and
assessment is finally determined on
appeal; or
c) an objection has been made by the
taxpayer and has been considered by IRB,
and the taxpayer took no further extension.

Once a final assessment is arrived at, it

cannot be reopened except in the
circumstances below:
a) where income has escaped assessment;
b) where deductions have been allowed
erroneously;
c) where an error or mistake has been
committed by the taxpayer; or
d) where a mistake has been made by the
DG.

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11.4 Tax Audit

COLLECTION
Section 103 ITA 1967, a taxpayer is required to
pay the tax as stated in the return form.
The payment should be made regardless
whether the taxpayer intends to appeal or not.
This means that the taxpayer must pay the tax
first and appeal later.
A taxpayer must make payments within 30
days from the date of the service of notice.
A 10% late payment penalty will be imposed if
the taxpayer fails to pay within the time limit.
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Types of tax audit:

a) Desk audit
- office examination of tax returns, accounts
and tax computations.
- to determine whether the tax returns,
accounts and tax computations are correct
and supported by documents.
b) Field audit
- carried out at the taxpayers business
premise.
- examine records other than business
records ie. Sole-proprietorship and
partnership.
- notification of audit is 14 days.
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An examination of a taxpayers business

activity records to ascertain that the right
amount of income should be declared and the
right amount of tax should be calculated and
paid are in accordance with tax laws and
regulations.
Cover a period of one to three years of
assessment.
May extend beyond the period depending on
the focus of audit and issues identified.
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11.7 Tax Compliance & Ethical Issues

Tax Evasion vs. Avoidance

Tax evasion:
o A deliberate act of non-compliance that results
in the payment of less taxes than actually owed.
o Marked by transactions or circumstances which
involve some elements of fraudulent conduct
accompanied by a real intent on the part of the
taxpayer willfully or deliberately to mislead,
deceive or conceal from the IRB.
o Tax evasion is illegal.
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Example
Tax Avoidance:
o Tax avoidance is the legitimate usage of tax
loopholes in order to reduce ones tax liability.
o Achieved by means which are within the law
because steps are taken before tax liabilities
actually accrue.
o Tax avoidance is legal.

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Fraud
A declaration of an untruth with an intention
to deceive.
Keeping two or more sets of accounts and
concealing income by under-declaring
income to the IRB with an intention to deceive
the IRB is a fraud.

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o If a salesman fails to declare to the IRB the

commission he earns from selling
encyclopedias, then he is guilty of tax evasion
and if caught may be subject to a severe
penalty.
o On the contrary, if the salesman claims
deductions for costs he has incurred in selling
the books, ie. taxi fare and telephone cost,
then he is merely trying to reduce his tax
liability and regarded as tax avoidance.
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Indicators of fraud :
o variations in size of items recorded in the
balance sheet at the end of two or more
consecutive years of assessment;
o sudden increase in sundry or other creditors;
o insufficient drawings for private living expenses;
o investment income does not commensurate to
earnings reported;
o irregular patterns in income reporting;
o deviation in inter-firm comparison;
o disproportionate deductions;
o conspicuous operating expenditure;
o unreasonably low turnover or profits as compared
to type of business, location and number of
customers.
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The highest reward for mans toil

is not what he gets for it
but what he becomes by it
ruskin KAT 2013 / 062 (SALIZA ABDUL AZIZ, ASA)