Table of contents

No
1.
2.
3.
4.
5.
6.
7.
8.
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10.
11.

Topic
Introduction
Assessment
Self-assessment system - individual
Self-assessment system - company
Collection and recovery
Appeals
Penalties and offences
Bibliography
Turnitin report
CD
Appendix

Page
2
3-6
7-9
10 - 11
12 - 13
14 - 15
16 - 18
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1.0 Introduction
A self-assessment is a system that emphasizes the taxpayers responsibility to report
their income and the need to determine their own tax liability. Tax in Malaysia is charged
based on territorial basis and principle source. The self-assessment system (SAS) in
Malaysia has begun since 2001. There are three types of taxpayer which is the
individuals, business and partnership. Companies are the first to be implementing the
self-assessment system in 2001 followed by the others in 2004. In Malaysia, individuals
who are liable to tax are required to declare his income to Inland Revenue Board of
Malaysia (IRBM) using the Income Tax Return Form (ITRF) (Self-Assessment:Alan
Yoon Associates:, 2010).

2.0 Assessment
2.1 Types of assessment
a) Primary assessment
The primary assessment is the original assessment that contains all the relevant
particulars for the taxpayer in accordance to the tax authoritys requirement (Choong
, 2012). The Director General is in charge on accepting or refusing the form
submitted and determines the tax payable based on his conscience.
Any amendments can be made after the submission of the original form within six
month from the due date. It is only applicable if the form is submitted on time and selfamendment being made once for each year of assessment (IRBM, 2014).
b) Reduced assessment
The taxpayer can appeal for a reduced assessment considering with valid and
acceptable evidence to reduce the amount of income tax charges. It can only be
achieved if both the taxpayer and Director General reach an agreement or the
appeal case is won at the court.
c) Additional assessment
There are certain cases in which the Director General will issue an additional
assessment which is when it is discovered that certain income has been mistakenly
omitted or not been taken into account in the original assessment or when there is
an error which requires the tax to be refunded (Choong , 2012).
d) Composite assessment
The composite assessment is issued when it is discovered that the taxpayer has
committed an offense. It is usually made after a tax investigation is conducted.
Normally, it comprise few years of assessment in which the taxpayer been giving an
incorrect information which resulted in an undercharge of tax. Once the composite

assessment is issued, the taxpayer cannot appeal to the special commissioners as it

would be final and conclusive.
e) Increased assessment
An increased assessment is only issued when there is an increase in tax payable.
The increased assessment notice will only be issued when both party, the taxpayer
and Director General has reached an agreement or ordered by the Special
Commissioners or court. There will be no right to appeal once the agreement has
been made.
f) Advance assessment
The advance assessment is where the Director General is authorized to charge the
taxpayer in advance. When a taxpayer is about to terminate their business, the
Director General is allowed to evaluate in advance to prevent loss of income. Other
reasons includes where the taxpayer receives pensions, employment income and
upon leaving Malaysia for a long time (Choong , 2012).
g) Protective assessment
The protective assessment is issued when the taxpayer is suspected of
carelessness, scam or wilful default. The assessment is up to six years time limit
(Choong , 2012).
2.2 Tax authorities office
The Inland Revenue Board of Malaysia (IRBM) is responsible for assessing, collecting
and enforcing taxpayer taxs liability. The agency acts as the main revenue for the
collection of direct taxes such as the Income tax, Petroleum (Income Tax), Real
Property Gains Tax, estate duty, stamp duties and such other taxes (IRBM, 2014).

2.3 Service of notice

The taxpayer will receive a notice relating to tax matters which is sent by the post to the
taxpayer registered office, last known address or any person authorized by it. To ensure
that the taxpayer receives the letter, the Internal Revenue accounts the letter sent and
received to the taxpayer in a record book as a proof. Penalties will be imposed to the
non-compliance. Individuals who did not inform the IRB upon changing his address will
be at risk of the law stating that the notice have been delivered (Choong , 2012).
2.4 Director Generals power on assessment
Based on section 90 and 91 of the Act, the Director General has the power to raise or
amend assessment according his best judgment which is defined as;
1) To exercise their powers in good faith
2) Judgment must be supported with facts
However, it is not the directors duty to conduct an investigation in search of the relevant
evidence as it is the taxpayer responsibility to provide returns for the tax authorities to
base their judgment. Reasons for such estimate are not necessarily given to the
taxpayer unless it is requested by the Special commissioner or the court (IRBM, 2014).
2.5 Unlimited assessment
The Director General has the authority to raise assessment for all previous years with
no time limit if it is discovered that;
I.

The taxpayer or on behalf of other person has been committing any form of fraud

II.

or wilful default
Negligent cases

The Director General can only raise the assessment to the taxpayer or individuals with a
solid proof claiming that the taxpayer has committed the offences (Choong , 2012).

2.6 IRB practices

Most of the documents sent by the taxpayer are through courier service. Dockets which
are stated with contents of the documents, tax reference number and company name
are only acceptable as evidence to IRBM.
Example;
Grand Milennium Sdn. Bhd.

C1XXXXXXX-XX

Form C YA 20XX and Form R YA

20XX

3.0 Self-assessment system individual

The individual taxpayer consists of employees, sole-proprietors and individual partners.
However, not every individual are liable to pay tax. Individual having annual income
more than RM26, 501 (after EPF) is eligible to tax (IRBM, 2014) (pwc, 2014). The
assessment year for individuals follows the calendar year (1 st Jan-31st Dec).
3.1 Responsibility of the individuals
The self-assessment system in Malaysia is based on Pay, Self-Assess and File
concept. Individuals are required to revise, compute the income tax and account for his
tax liability.
Section 82 of the Income Tax Act 1967, an individual with employment or investment
income is required;
-

To keep and retain sufficient records for period of 7 years

To keep printed receipts with serial numbers for sale of goods exceeding
RM150,000 or provision of services exceeding RM100,000 in value

The reason to retain the documents is to facilitate field audit to ensure that tax liability
has been computed and the amount paid has been properly accounted for.
3.2 Submission of return
The submission of the tax return is on a year later. For example, a taxpayer will have to
submit their 2012 assessment on 2013.
Malaysian resident have to submit forms before;
I.
II.

BE form (no business source in the year of assessment) 30 th April every year
B form (having business source in the year of assessment) 30 th June every

III.

year
P form (partnership) 30th June every year

For non-residents they have to submit M form within;

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I.
II.

Without business source 30th April every year

With business source 30th June every year

3.3 Payment of income tax

The tax rate is differentiated by the residency status.
I.
II.

Resident- charged on variable rate ( the more you earn, the higher your tax)
Non-resident charged based on flat rate

If an individual is staying in Malaysia for more than 182 days for YA, he/she is entitled
for a resident status (MIDA, 2014).
The government has announced a tax rate reduction of 1% for all taxpayer with a
chargeable income of RM50, 000 in the Malaysian budget 2013. Non-residents will be
charged at a flat rate of 26%. The table of tax rate for YA 2013 and 2014 is shown in the
appendix.
There are two means for an individual to pay their tax;
I.

By Scheduler Tax Deduction (STD) - Tax will be deducted monthly by the

II.

employer if the individuals are having employment income.

By instalment individuals also can pay their tax liability in 6 bi-monthly
instalments

Individuals having more than one source of income will have to pay using both methods.
For example, Miss Maya is working at a bank as finance manager. At the same time,
she is also running a caf in Kota Damansara which is operated by her relatives. As she
is employed, her employment income is deducted by STD method however, she still
need to pay her tax on business source by instalment method.

3.4 Deemed assessment

The Director General shall be deemed to make an assessment on the day the return is
submitted. It is to confirm that the return filed is accepted as true and correct (Choong ,
2012).
3.5 Amendment of return
Taxpayer can amend their tax return within six months from the submission date
(Choong , 2012). The amended return shall state the additional amount of income
chargeable, tax payable, informations and penalty for late payment.

4.0 Self-assessment system- companies

A company is liable for tax if its management and control is exercised in Malaysia. In
other words, a company is considered as a tax resident if the directors meetings are
held in Malaysia. The assessment for companies follows the basis of financial year
(KPMG, 2013). For example, if the company closes their accounts on 31 st May each
year, the YA 2013 would be from 1st June 2012 31st May 2013.
4.1 Payment
Amount of tax charged is based on the company chargeable income;
I.
II.

On the first RM500,000 20%

In excess of the next RM500,000 25%

Payment of corporate income tax is based on instalment payment (CP204). A notice of

payment (CP205) and 12 month payment slip (CP207) will be issued by the tax
authorities after the company has filed the return to ITRF. Monthly instalment must be
made before 10th of every month and late payment will be charged a penalty of 10%
(IRBM, 2014).
4.2 Revision of estimate
With regard of the SAS implemented, a company is required to file and pay their tax
liability. Therefore, revision of estimate is essential to review the estimated tax payable
with the actual tax paid. If the difference in estimated and actual exceeds the 30%
margin of error, penalties will be imposed to the company (IRBM, 2014). The objective
is to avoid overpayment or underpayment of tax.
4.3 Submission of return
Company has to submit the income tax return form within 7 months after the close of
accounting period (IRBM, 2014).

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4.4 Notice of assessment

Under section9 (1), The Director General is deemed to have made an assessment on
the chargeable income sent by the company. A notice of assessment detailing the
amount of income tax liability is sent to the taxpayer after they have submitted their
return. The company has a right of appeal within 30 days of making an assessment.
Any objections can be made on the same day of filing of return.
4.5 Commencement of business
A Small medium enterprise (SME) who first commences their business does not have to
estimate and pay their income tax payable for the period of 2 YAs (Choong , 2012). The
advantage given is to expedite the growth of SME in Malaysia.
For a new company with paid up capital exceeds RM2.5 million, they are required to
provide their income tax estimate (CP204) within 3 months from the commencement
date.

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5.0 Collection and recovery

5.1 New application
For business and self-employed individuals, they are required to pay tax through the bimonthly payment scheme. A notice of instalment payment CP500 can be applied from
the IRBM branches. Taxpayer without instalment scheme will have to settle off their tax
liability within 30 days from the date the Notice of Assessment been sent (IRBM, 2014).
5.2 Scheduler tax deduction system (STD)
The system is implemented on 1st January 1995. It collects tax strictly from employees
on monthly basis. The tax liability amount varies as it is based on current income or
known as Pay as You Earn (PAYE) scheme. STD is subject to employees normal
remuneration and it is mandatory. The employer is responsible to submit their
employees personal information. The payroll system used by the employer should
comply with the monthly tax deduction set by the tax authorities. The employees have to
make a comparison between the monthly tax deduction and actual tax payable that is
supposed to be paid. The difference of overcharge or undercharge must be informed to
the IRBM to gain refunds or payment (Choong , 2012).
5.3 Recovery
I.

Recovery from wife - the husband is responsible for tax payment in the case of

II.

joint assessment.
Recovery from husband the husband income to be jointly assessed with his

III.

wife.
Recovery from person leaving Malaysia a person cannot leave Malaysia unless
he pays all the tax, sums and debt (Choong , 2012).

5.4 Tax administration

Payment can be made at the IRBM payment counter which is in Jalan Duta, Kota
Kinabalu and Kuching. To ease tax collection, IRBM has made an agreement with
financial institutions such as Bank Islam, CIMB Bank, Maybank and Public Bank. This
agent accepts payment through internet; over the counter and ATMs. Post offices also
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provide payment for income tax but limited to cash basis. It is applicable for both
individuals and companies (IRBM, 2014).
5.5 Compensation for overpayment of tax
When the payment is more than the tax imposed, the taxpayer is entitled for a refund. If
the account is not credited automatically, the taxpayer will have to inform the IRBM
branch.
Reimbursement will be received within;
1) 30 days from the date of submission (done through e-filing)
2) 3 months from the submission date (done manually)

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6.0 Appeals
6.1 Rights to appeal
According to the law [s99 (1)], each taxpayer has the right to appeal against an
assessment issued by the tax authorities under certain conditions;
-

Unsatisfied with the estimated notice of assessment or additional assessment

made.
Personal reliefs have not been given appropriately.
Certain claimable expenses or relief has been overlooked.
Error made by the Internal Revenue Board of Malaysia.

6.2 Scope of assessment

A taxpayer has the right to appeal against the assessment issued by the tax authorities.
No assessment will be submitted for a particular YA if they have no chargeable income.
A taxpayer with no chargeable income who still receives notice of assessment can
make an appeal to the special commissioners within 30 days.
6.3 Proper forum
A taxpayer must follow a proper procedure when doing an appeal. Failure to do so can
result in rejected appeals (Choong , 2012).
6.4 Finality of assessment
An appeal is valid within 30 days of the date of deemed assessment. Should there be
no appeals done by the taxpayer within that specified date, the assessment is
considered as final and conclusive (IRBM, 2014). However, the taxpayer can apply for a
time extension if additional time is required to extract and gather information.

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6.5 Process of appeals

1st stage:
Internal Revenue
Board of
Malaysia branch
(IRBM)

2nd stage:
Special
Commisioners of
Income Tax

3rd stage: High

Court

Taxpayer who is displeased by the assessment made can write to the IRBM branch
issuing it within 30 days from the notice date. If both the taxpayer and the IRBM have
reached an agreement, the appeal is settled. However, if the taxpayer is still unsatisfied
with the decision, the case will be forwarded to the Special Commissioners and the
appeal continues to the High Court if no agreement is made.

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7.0 Penalties and offences

7.1 Types of penalties and offences
Offences

Failure to provide a return

[ss77(1), 77A(1)]
Fail to give notice of
chargeability [s77(3)]

Incorrect return

With prosecution
Fine between

Without prosecution

RM200 RM2,000

Penalty up to three

or six month

times the amount of

imprisonment or both

tax [s112(3)]

[s112(1)]
Fine between

Omitting or understating

RM1,000-RM10,000
and penalty equal to

Penalty equal to the

income
Giving an incorrect

double the amount of

tax undercharged

tax being

[s113(2)]

information which can

affect the chargeability of

undercharged

tax [s113(1) and (2)]

[s113(1)]
Fine between
RM1,000-RM20,000

Wilful evasion (s114)

3

or three years

An act with intent to evade

imprisonment or

or assist any other person

both; plus three

to evade tax wilfully

Not applicable

times the tax

undercharged
penalty [s114(1)]
Fine between

Understatement of tax [s114(1A)]

RM2,000-RM20,000
or three years

Not applicable

imprisonment or both
5

Leaving Malaysia without payment of

tax (s115)

[s114(1)]
Fine between

Not applicable

RM200-RM2,000 or
six month
imprisonment or both
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(s115)
Obstructions of officers (s116)
-

In the course of their

duties by refusing them
entry into any land,
building or place; any

books or documents;
refuses to answer

Fine between
RM1,000-RM10,000
or one year

Not applicable

imprisonment or both
(s116)

questions related to tax

purposes.
Breach of confidence (s117)
-

communicates confidential

material to another person

giving access to

confidential material
Offences by officials (s118)

officials who acts in his

own interest;
eg: withholds a portion of
tax or penalty collected;
makes false reports or

Maximum fine of
RM4,000 or one year
imprisonment or

Not applicable

both (s117)

Maximum fine of
RM20,000 or three
years imprisonment

Not applicable

or both (s118)

returns
Unauthorized collection of tax or
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penalties (s119)

Maximum fine of
RM20,000 or three
year imprisonment or

Not applicable

both (s119)
Fine between
RM300-RM10,000 or
10 Failure to keep records (s119A)

one year

Not applicable

imprisonment or both
11 Other offences
a) failure to comply with a notice

(s119A)
Fine between

Not applicable

RM200-RM2,000 or
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[s120(1)(a)]
b) failure to comply with an order
made [s120(1)(b)]
c) failure to give notice by
employer [s120(1)(c)]
d) contravention of the duty
imposed by the act [s120(1)
(d)]
e) failure to comply with the
directions to deduct tax (s107)
f) failure to comply with a
direction given on retention of

six month
imprisonment or both
[s120(1)]

money concerning departing

or terminating employees
[s83(5)]
g) failure to provide an estimate
of companys tax (s107c)
h) failure to submit form R
[s108(5)]
i) failure to comply with monthly
tax deduction scheme
Source from (Choong , 2012)

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Bibliography
Choong , K. F. (2012). Malaysian Taxation; Principles and Practice 18th edition. Kuala
Lumpur: Info World.
IRBM. (2014, February 26). LHDN; Internal Revenue Board of Malaysia. Retrieved from
Internal Revenue Board of Malaysia: http://www.hasil.gov.my/goindex.php?
kump=5&skum=1&posi=9&unit=1&sequ=1&cariw=appeal
KPMG. (2013). 2013-Thinking Beyond Borders. KPMG International.
MIDA. (2014). Malaysian Investment Department Authority. Retrieved from Malaysian
Investment Department Authority: http://www.mida.gov.my/env3/index.php?
page=taxation
pwc. (2014). Price Water Coopers. Retrieved from Price Water Coopers:
http://www.pwc.com/my/en/
Self-Assessment:Alan Yoon Associates:. (2010). Retrieved from Alan Yoon Associates::
http://alanyoonassociates.com/self/index.html

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