Taxation responsibilities getting your income tax act together

A somewhat unwelcome issue that comes to mind at the beginning of the year are the forthcoming deadlines for submission of various income tax return forms and the need to ensure that the returns are properly completed and submitted.

Coupled with this is the matter of settling any shortfall of taxes that may be due for year of assessment 2015. Of life’s two inevitabilities, most people would of course prefer meeting taxes rather than the other; in fact, taxpayers are generally resigned to the fact that they have to pay taxes and accordingly, would want to comply as fully as the law demands.

Some of the submission and payment advice here would already be known to most people, but a reminder would not hurt. The more relevant issues would be:

A. Submission deadlines

i) Form E and EA by the employer

The EA forms must be “rendered” by the employer by the last day of February. Technically, the law requires the employer to furnish this form to all his employees though most employers usually take a short-cut and give them only to employees who are liable to tax. So far, the Inland Revenue Board (IRB) director-general has looked the other way on this.

A crucial often overlooked point that must be borne in mind is that the EA form should reflect only remuneration, which includes benefits-in-kind and value of living accommodation, that was actually paid or provided to the employee and not what the employer may have charged to the accounts.

Quite correctly, the employer is allowed to charge expenses that “have been incurred”, meaning sums for which the liability to pay has arisen, and not just expenditure he has made payment for. Thus, for example, he could charge “bonus” to the accounts even though the payment has not been actually made to the employees.

On the other hand, the employee is liable only on sums he has received, not what is due to him. Thus the unpaid bonus would not constitute income to him. Should the employer include the bonus in the EA form to reconcile with what he has charged to his accounts, the disparity between what is shown in the EA form and what the employee declares could give rise to problems with IRB should the employee come under tax audit. The employer would have no problem, at least on this issue. Obviously, when the bonus is later received by the employee, it would be taxable.

The Return Form E, which basically is a summary of remuneration paid to the various categories of employees including details of monthly tax deductions made, must be submitted to IRB by March 31, 2016, failing which, a penalty as high as RM20,000 could be imposed though depending on the facts of the case, the director-general usually imposes a lower amount. With effect from YA (year of assessment) 2016 (with the relevant Form E to be sent in by March 31, 2017), Return Forms E must be submitted by e-filing if the employer is a company.

ii) Forms BE (Deadline: April 30) and B (June 30)

The distinction between these two forms is not “employees” and “others” as commonly believed but whether the taxpayer (for Form B) has a business source or not (Form BE). As in the case of all return forms, there is no need to attach any document with the form submitted, not even Form EA, supporting documents for deductions claimed, or accounts; to claim reliefs, just tick the relevant box accordingly or state the appropriate amount. You can be assured that IRB would ask if they wish to verify any claim!

Related to being allowed to charge “incurred but not yet paid” expenses, the basis of income-recognition for businesses including professional practices is “accruals”, what is due to be received. For example, should a lawyer or doctor render some professional service but has not yet received the fees charged, he would still be liable on the amount due. The compensating factor is that should the amount taxed prove later to be irrecoverable, a claim for “bad debts” could be made.

The fact that accounts need not be submitted is not really a concession, Forms B, C (Companies), P (Partnerships) or PT (Limited Liability Partnerships) are so designed as to offer the director-general all the data he requires. From the information gleaned, the DG would conduct a performance evaluation and should the results not meet revenue’s expectations, he may want to carry out an audit or even an investigation.

The recent excitement over doctors coming under the tax microscope may have been due to this. That they were using a limited company through which to practise would not by itself have been unacceptable and they have avenues available to appeal against revenue’s assessments. The position is not be as open and shut as IRB may suggest and the doctors fear.

B. Payment Obligations for YA 2015

Taxes are generally paid in advance; employees through monthly tax deductions and others through bi-monthly instalments ending in January 2016. Where the deductions made or instalments paid are insufficient to meet the actual tax liability, the shortfall must be settled by the due date of submission of the respective return forms. Should this payment deadline be missed, an increase of 10% of the taxes outstanding would be imposed followed by a further increase of 5% after 60 days of the due date.

Individuals other than employees would be notified by the director-general as to the bi-monthly instalments to be made. This would be by way of Form CP 500 and the notice for YA 2016 can be expected by early February. Should the taxpayer feel that the tax estimated by the DG is excessive, he has until June 30 to make an appeal to have the instalments reduced.

Recovery action that IRB could take includes the instituting of civil suits and/or the issuance of a Section 104 Notice under which the person would not be allowed to leave the country until the tax due has been settled or suitable arrangements have been made with the tax authorities. It was must remembered that despite any appeal that may have been lodged against an assessment, the taxes due would nevertheless have to be paid.

---

VINCENT JOSEF is a former assistant director-general of the Inland Revenue Board where he served for 35 years. Apart from being an active lecturer on the tax seminar circuit, he manages his own practice and has now been in the field for 48 years. He has written a book, ‘Tax Audits and Investigations Guide’ and is the consultant editor of the ‘Malaysian Master Tax Guide’ published by CCH Malaysia. -Mkini