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AICPA Principles/Definition

1.Equity and Fairness.
Similarly situated taxpayers
should be taxed similarly.

Individual / Corporate Tax (Direct Tax)
Economically, all income is taxed
Difficult to convince most individuals that investment income
is taxed the same as earned income when only earned
income is reported on a tax return.
Thus, it will generally not be apparent that horizontal equity is
The fairness principles also leads to an issue where an extra
deduction for interest be allowed for individuals claiming
the standard deduction.
Thus, would equity and fairness be better met by just
increasing the standard deduction.

Sales & Service Tax (Indirect Tax)
Taxable person imposed limited :
Only 9 groups of services including hotel, restaurant, night club, private
club, Golf, hospital, insurance, professional services, multimedia and
communication and many others stipulated in schedule II of Service Tax
Act 1975. Other service provider such as information technology (IT),
trust and property management are tax exempted.
Different threshold restaurant and employment agency is at RM 300,000
but services like advertising and parking is at RM 150,000. Professional
services like management consultancy, legal advices and accountant
have no threshold.
Only certain approved industry or licensee can enjoy tax inclusive
facilities which of course give a wide difference in term of tax collected.

2. Certainty.
The tax rules should clearly
specify when the tax is to be paid,
how it is to be paid, and how the
amount to be paid is to be

The tax on individual and business is quite clear.
This is because where it is difficult or impractical to collect tax
from such person, the Act provides for the appointment of
agents or representatives to be assessed and charged to
tax on behalf of such person.
But it rises a second issue of level of technology readiness of
Malaysian tax practitioners and their usage intentions
towards an electronic filing system.
The issue that rises in this principle is that whether it is best
to collect the tax from a manufacturer, wholesaler, retailer
or customer as well as collection frequency.
Second issue lead to the transfer pricing payment. This is
because when not carefully managed, can create
significant risks and costs for payments organizations now
and in the future. Example of risk is lacking of business unit
awareness of transfer pricing risks and opportunity.
According to Muzainah Mansor et,al, 2005
issue whether the present system of indirect tax has
achieved to collect the country’s indirect taxes efficiently
and effectively.
weaknesses of the present system were highlighted by the
reports that the government lost about 170 million of
indirect tax revenue as of April 2002 and about RM1.2
billion at the year 2002 due to poor enforcement.
Besides that IRB having less issue in collecting the taxes as
stated in star online dated April, 9 2013. This is because
IRB collects taxes with the cooperation of 13 collection
agents including Maybank, Bank Rakyat, CIMB, Public

The taxable schedule is payable for every two months and due date of
payment is clearly specified. However, there are two different schedule
of payment 1) payable every odd month licensee (ie: tax received for
January – February will be paid on March) and 2) even month licensee
(ie: tax received for February – March will be paid on April).

3.Convenience of Payment.
A tax should be due at a time or in
a manner that is most likely to be
convenient for the taxpayer.

4. Economy in Collection.
The costs to collect a tax should
be kept to a minimum for both the
government and taxpayers.

Given 28 days to declare and pay the tax to RMCD offices nationwide.
The medium of payment through the normal counter, easy drop counter
and by mail.
Online payment has been introduced in early 2014 to promote
convenient of payment.

According to Muzainah Mansor et,al, 2005 it state the issue on present
system of indirect tax has not achieved to collect the country’s indirect
taxes efficiently and effectively.
weaknesses of the present system were highlighted by the reports that
the government lost about 170 million of indirect tax revenue as of
April 2002 and about RM1.2 billion at the year 2002 due to poor
At average 1000 – 2000 licensee reported failed to declared and paid
their SST every months
With online payment the collected tax would be reduced as gov has to
bear the transaction online cost amount to RM. 0.50 for every
transaction payable to the Bank’s agent which is RHB Bank and Meps

The simplicity. Tax ruling and relevant act deemed as not transparent and visible to the public as the proper treatment and specific guidelines is absent even in the RMCD website. Economic Growth and Efficiency. For example. adopt consistently and cant mix any of the selected bases.Bank. The tax law should be simple so that taxpayers understand the rules and can comply with them correctly and in a cost-efficient manner. Besides that people need to have additional recordkeeping burdens and they need to know the basic charitable deduction rules. this tax system does not meet the neutrality criteria as it give confusion and also leads to more tax evasion among licensee. because some of the donated funds would otherwise have been spent for other purposes. licensee has to clearly segregate between the taxable and non-taxable service in the invoices. The transparency and visibility issues occur because consumers may not know that sales tax exists in online purchases and they believe the sale is exempt. certainty and neutrality principles are frequently challenged at both the Federal and State level. Thus. The effect of the tax law on a taxpayer’s decisions as to how to carry out a particular transaction or whether to engage in a transaction should be kept to a minimum. in a consortium construction project involved 3 different licensees it will create confusion as to whether they have to pay the tax separately or payable by the main contractor. Not only that. Thus in reality consumer likely needs to self-access use tax. Labuan. when payment is due : pay upfront any uncollected amount within 12 months from the invoice date. Second issue is that many people believe that the internet is growing regardless of current tax rules. Transparency and Visibility. exemption and tax credits. it creates complexities for the RMCD auditor to audit and cross check the tax compliance among licensee especially big companies. Neutrality. Thus today. economy of collection and simplicity. The issues in neutrality come in place as it affect a person’s decision as to how to spend. and 2) invoice basis. Simplicity. Tioman and the Joint Development Area Exemption facility for sales tax. as new rules are added to create special deductions. . Secondly. The licensee has to come over the counter to get all the information and normally is lacking the black and white answer. Also. It is not an easy to include uniformity of new rules and procedures. The multiplier effect on indirect tax system is hardly to be determined. Second issues in neutrality are in e-commerce business. The current practice accept both type of declaration which create confusion and unstandardized declaration issues. Difficult to trace individual who running online business thru permanent establishment issue – avoid sales tax In Malaysia the effect on the economy is difficult to measure. raw materials for export and government used To attract foreign direct investment and retain those multinational companies (MNC) to spur economy growth and efficiency in Malaysia. online purchases are subject to sales and use but however the states ability to collect use tax on remote online sales is quite low. RHB and HSBC as well as Pos Malaysia. Exemption on that business in free trade zone like Langkawi. certainty. Taxpayers should know that a tax exists and how and when it is imposed upon them and others. 7. 1) collection basis. with an added incentive to donate to a charitable organization. two payment bases. 8. Depending on the competency of the officer consultancy which maybe varies among them The service tax system has so far contradicted with several guideline principles of fairness and equity. the complexities of business chain make it difficult for licensee on how to charge and collect the tax and who is the final licensee to pay the tax in the event of joint-licensee involved in particular business chain which is commonly practice nowadays. 6. 5.

Minimum Tax Gap. and 4) Service providers which do not submit the required tax return forms. GST was announced as one of the six Strategic Reform Initiatives under the Economic Transformation Programme. The degree to which the burden of a tax is shifted determines whether a tax is primarily direct or primarily indirect. which has been the case for many years. Appropriate Government Revenues. The tax system should enable the government to determine how much tax revenue will likely be collected and when. For example the risk management of GST issue must be part of the organization’s risk management process Rohaya Md Noor (2013) using sample data comprised of 275 taxable service providers subjected to tax audit during the years 2009 to 2011. therefore the business community must start to plan and manage this tax transition. which makes up approximately 35% of the Government’s total revenue. Corporate income tax is an important source of government revenue. Second issue is that business not only pay attention to achieving compliance with the GST law and regulations but it also important to consider whether there are any opportunities that should be engage. trailing behind countries like the Philippines. This is because no one will be exempt from GST regime. Indonesia and Singapore. a major change in the tax system would be required to address the growing Government revenue requirements Decline in petroleum income. from multinational companies to small and medium business owners. In the implementation of GST. The focus of the current tax system in Malaysia is on income tax. This is because the World Foreign Investment Report (WIR) 2010 released by the United Nations showed that FDI in Malaysia plunged 81 per cent in 2009.8% of revenue. Second issue here is that whether foreign direct investment tends to enhance economic growth more efficiently when a recipient country has a well-developed and wellfunctioning financial sector. This is because an indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products. given Malaysia’s ambition to become a high income nation by the year 2020. 10. This is because countries that depend heavily on taxation of natural resources such as oil or minerals are especially vulnerable to cyclical swings. First issues of revenue growth generally slow during recessions and accelerates during expansions. with wide swings in commodity prices changing the level of tax revenues. Vietnam. Based on Government statistics. 2) The smaller size of service providers. 3) Service providers that engaged smaller sized audit firms. Tax gap exist in the service industry thus its shows that there is a significant difference between declared service tax and actual service tax value. 9. the present tax system may not be sustainable. Even though it is estimated that less than 10% of the 28 million population of Malaysia pay income tax. Thailand. . SUGGESSTION Review Tax Incentive against the economic multiplier effect.Besides that it raises the issue of difficulty of tax payer to understand the indirect taxes. KPMG Malaysia reported said that it is not just a tax issue. and indirect taxes contribute only 17. it is a whole of the business issue. A tax should be structured to minimize noncompliance. It was found that there are four factors which can be associated with service tax evasion: 1) Service providers which are subjected to the threshold limit.

6%. At the originally proposed GST rate of 4 . prices are not expected to increase significantly and. More attractive for businesses than Malaysia Simplified the multi-tier calculation for individual tax income and if possible capped at one std tax rate rather than multi-range of tax rate. fiscal deficit would decline to 3%. Government debt capped below 55% of GDP.g. In the 2013 Budget the Malaysian Prime Minister announced a 1% reduction in income tax rates for individuals in the lower bands from 25% to 24% in 2015.Most MNC want to enjoy the incentives rather than long term business sustainability. The reduction of income tax rates was given in anticipation of the imminent transition from “the current tax system to a tax system that is fairer”. As GST in Malaysia would replace the existing Sales and Service Tax. e. any inflationary element is not expected to be significant. beer. for certain goods. Quickly switch strategy to other developing countries who offer better tax incentives Create imbalance among industry because certain industry have to pay more than the other Corporate tax should be reducing further as Singapore already capped at 17%. prices are expected to decrease. .