TAX

ADMINISTRATION
 INTRODUCTION
 This chapter covers the administrative
machinery by which income tax is levied
and collected
 The scope of tax administrative is very
wide, the various aspects include the
issue of return, assessment, power of DG,
offences and penalties, the appeal
process and method of collection and
recovery of tax.
 Cont..
 To administer the various tax legislation and to
make the tax system work, tax administrators
should:
a) encourage and assist voluntarily compliance with
the requirements of the law,
b) maintain a dialogue with tax payer and tax agent
c) maintain a public confidence in the integrity of the
tax system
d) defer tax evasion
e) administer the tax laws fairly, uniformly,
impartially and without unwarranted rigidity.
 THE INLAND REVENUE BOARD OF
MALAYSIA
The Inland Revenue Malaysia is one of the main revenue


collecting agencies of the Ministry of Finance.

The Department of Inland Revenue Malaysia became a board



on March 1, 1996, and is now formally known as THE INLAND

REVENUE BOARD OF MALAYSIA.

The Inland Revenue Board was established in accordance with



the Inland Revenue Board of Malaysia Act 1995 to give it more

autonomy especially in financial and personnel management;
to improve the quality and effectiveness of tax administration.
Cont..
 The functions of the Board are

a) to act as an agent of the Government and to

provide services in administering, assessing,
collecting and enforcing payment of various taxes;
b) to advise the Government on matters relating to
taxation and to liaise with the appropriate
Ministries and statutory bodies on such matters;
c) to participate in or outside Malaysia in respect of
matters relating to taxation; and
d) to perform such other functions as are conferred
on the Board by any other written law.
Cont..
 Powers conferred on the DG by the IRB of the
Act include the power:
- To call for submission of returns and all info.
relevant thereto (s.77)
-To require taxpayers to attend personally before
him and to produce books, accounts, etc (s.78)
-To call for statements of bank accounts, assets
and all sources of income (s.79)
Cont..
- To have full and free access to all land,
buildings and places and all books and other
documents of a taxpayer (s.80)
- To require the keeping of records and books
of accounts (s.82)
- To prevent taxpayer from leaving the country
without settling his tax liabilities (s.104)
- S.90 to 92, s.150, s.68, s.103, s.112 and s.113,
s.129, s.140, s.152
Continued
 Powers of DG ( Section 90 and 91 confers to the
DG the following powers) :
a) ask anyone to submit return of the taxable
income
b) ask anyone to present at IRB office
c) ask anyone to prepare and submit statement of
accounts
d) enter any premises, building or place
e) take any documents for purpose of checking
f) extract any part of the accounts
g) translate any accounts in Bahasa Malaysia
h) request any information in oral or written
 TYPES OF TAXPAYER

Generally tax payer include:

 An individual – everyone of us falls under this
category of taxpayer whether you are
employed or self employed.
 A business owner – anyone who carried on
business activities whether legal or illegal
 An employer – whoever employing someone
to work for him/her by way of master-servant
relationship
Cont..
 A Tenant – anybody occupying and land or
premises by way of renting

 A partner – partners in a partnership business

 Other taxpayer – any person who in whatever

capacity is in receipt or in control of any
money or property or belonging to any other
person who is chargeable to tax.
 INCOME TAX AUDIT
A detailed examination of the
financial records of taxpayer’s
business.
The objective of tax audit is to
verify income reported and taxes
paid are correct and is in
compliance with tax laws.
 TYPES OF TAX AUDIT
Desk Audit
– conducted by the IRB office
(random basis)
- concentrate on minor tax
adjustments and will be dealt with
through face to face interview,
telephone or fax.
 TYPES OF TAX AUDIT
 Field Audit (industry, source verification,
street survey)
- conducted by the IRB officers at the
taxpayers’ premises
- will include checking of taxpayers’
business and non-business records.
- Normally the IRB will give the advance
notice of their visit so that the taxpayers
can prepare themselves.
 RETURN AND ASSESSMENT
Returns of Income / Notice of Chargeability
• Section 77 (1) of the Act provides the DG with
the necessary authority to ask a person to
forward a return of income (in a prescribe
form) containing such information as may be
required for the purpose of ascertaining the
chargeable income of a person for year of
assessment.
• A person have to complete a return form even
though he have no income or chargeable
income.
 Tax Return Form
• Individual with business income,together
with investment & employment income must
file FORM B not later than 30 JUNE in the
following year.
• Individual with only employment income or
investment income or both must file FORM BE
not later than 30 APRIL in the following year.
• Refer example 30.1 & 30.2
• An individu who arrives in Malaysia during YA
and is chargeable to tax for the following YA
must notify the IRB of his chargeability to tax
within 2 months of his arrival.
 Tax Return Form
• Companies, LLP, trust bodies, cooperative
societies would submit their tax return within
7 month from the year end.
 Types Of Return Forms
Form B Resident individuals with a business
source
Form BE Resident individual without a
business source
Form M Non resident individual
Form C Companies
Form C1 Co-operative societies
Form P Partnerships
Form E Employers
 Return by Employers
• An employer is obliged to provide the IRB with
returns and information relating to its
employees under the provisions of Section 83
• Every employer must make an annual return
showing the names and addresses of its
employers and the income paid or payable by
them.
• Related documents / forms:-
i) Form E
ii) Form EA
iii) Form EC
 Return by Employers
• Commencement of employment - An employer
is obliged to give notice using FORM CP22 to
inform the IRB of the employment of a new
employee
• Cessation of employment – includes
resignation, retirement or death of an employee.
• An employer is required to notify IRB using
FORM CP22A (private sector) or FORM CP22B
(public sector):
 Death: not more than 30 days after being informed
 Others: not later than 30 days before the cessation
 Schedular tax deduction (STD)
• An employer is required to withhold tax
under the MTD system.
• Each month, the employer is required to
deduct appropriate tax of the employees
and remit it to the tax authorities not
later of 15th day in respect of tax in the
preceding month.
• Refer example 30.9
 Schedular tax deduction (STD)
• At the end of year the employer is required to
make annual return form showing:
a) total gross remuneration paid to all
employee each month
b) total gross remuneration paid to
employees who are subject to PCB.
c) total amount of tax deducted in accordance
to the deduction table for each employee.
d) receipt number in respect of deductions
remitted to IRB.
 Assessment
• An assessment is a notice in writing issued by
the IRB to the chargeable person stating a
proper amount of tax payable by the person.
• An assessment is made on a prescribed form
which must be served on the taxpayer. Various
types of assessment are:
- Original assessment
- Reduced assessment
- Additional assessment
- Composite assessment
- Increased assessment
- Advance assessment
- Protective assessment
 1.Original assessment
• Is the assessment made in accordance
to the particular provided by taxpayer or
his agent in the relevant return.
• DG can also exercise his discretion in the
following circumstance:
DG Judgment
Non-Submission of Return
 2. Reduced assessment
• There is an appeal against an assessment or
additional assessment, the taxpayer may:
a)Reach an agreement with DG during the
review of assessment or by providing
acceptable evidence for claims of
expenses;
b)Win the case through appeals to SP Comm
or court decision
• Reduced assessment would be issued to
reflect such income tax reduction.
 3. Additional assessment
• Additional assessment may be raised by DG in the
following circumstances:
i. The taxpayer had omitted certain income while
making the return and it is discovered by the
DG after making the original assessment;
ii. When tax had been refunded to the taxpayer by
an error of fact or law;
iii. Where there is additional income which has not
been taken into account when making the
return, or the original assessment has not
taken into account that income.
Additional assessment…
• Time bar for issuance of assessment:
W.e.f YA2014, the time limit for the issuance of
original assessment & additional assessment is
within 5 years after the end of the relevant YA.
Refer example 20.10
 4. Composite Assessment
• Raised when the taxpayer:
a)Makes default in furnishing a return in
accordance with S77(1) or 77A(1);
b)Fails to give notice of chargeability in
accordance with S77(3);
c)Make an incorrect return by omitting or
understating any income;
d)Gives any incorrect information affecting
his own chargeability;
 5. Increased Assessment
• An increased assessment is only issued
where:
a)The taxpayer reach an agreement with the
DG during the review of assessment
b)The Sp Comm or the Court had decide the
issued in dispute and resulted in an
increase in the tax payable.
• there is no right of appeal against an
increased assessment in the event there is an
agreement between the taxpayer and DG
 6. Advance Assessment
• DG can issue advance assessment under
the following circumstances:
a)Where a taxpayer ceases to carry on a
business
b)Where a taxpayer commences to
receive employment income, pension,
annuity or periodical payment
[s4(e)income].
c)Where a taxpayer is about to leave
Malaysia and his source of income is
likely to cease upon leaving Malaysia
6. Advance Assessment…
d) Where a taxpayer is carrying on
the business of transporting
passenger or cargo by sea or air.
e) Where the basic period of
business/investment sources for
YA does not coincide with
calendar year
f) Where taxpayer received income
subsequent to a cessation of
business.
 7. Protective Assessment
• The DG is authorized to issue additional
assessment subject to 5 years time limit
unless there is element of negligence,
willful default or fraud.
• Protective assessment is issued in order
to avoid assessment being time barre,
such as in the following circumstance:
 the taxpayer is likely to incur a tax liability
in YA 2016 but it is still under investigation.
Thus, the protective assessment will be
issued before the 31/12/2021
 SELF ASSESSMENT FOR
INDIVIDUALS
Refer chapter 31 CKF
Responsibility to keep documents
Submission of return
Payment of income tax
Deemed assessment
Amendment of return
SELF ASSESSMENT FOR COMPANIES

Commenced in YA 2001
Under the SAS, every company is
required to determine and submit in
a prescribed form (Form C) an
estimate of tax payable for a year of
assessment, 30 days before the
beginning of the basis period.
SELF ASSESSMENT FOR COMPANIES
However, when a company first
commences operations, the
estimate tax payable must be
submitted to the IRB within 3
months from the date of
commencement of its business, and
thereafter not later than 30 days
before the beginning of the basis
period.
 Cont…
 The estimate tax payable submitted for a
particular year cannot be less than the
revised estimate or the estimate of tax
payable for the immediately preceding
YA.
 Every company is required to pay the tax
in equal 12 monthly instalments. If the
company does not have a 12 months
account for YA, then the estimated tax
payable for that year will be divided by
the number of months of that YA.
Cont…
 The monthly installment will due on the
10th of every month commencing from
the second month of the basis period.
For new company, the first monthly
instalment commences in the sixth
month of the basis period.
 Every company is allowed to revise its
estimate of tax payable in the 6th month
and/or 9th month of its basis period
from YA 2003 onwards.
 TAX EVASION vs TAX AVOIDANCE
Tax Evasion
 The reduction of tax liabilities by not informing
the IRB of all relevant facts.
 It is Illegal and criminal penalties apply, hence, if
caught evading tax the directors of the company
will be fined and imprisoned.

Tax Avoidance
 The reduction of tax liabilities within the
framework of the law.
 Tax avoidance may not always succeed, but is
legal.
 COLLECTION AND RECOVERY
 There are 2 basic methods of collecting tax:-
1. By direct assessment (either on the person or
an agent)
2. Through deduction of tax at source

 Methods used:
1. Deduction of tax from emolument and
pensions
- who received income under S4(e)
2. schedular tax deduction (STD)
- collect tax from employees on monthly basis
 COLLECTION AND RECOVERY
3. Payment by installment scheme
- Balance of income tax payable spread over the
remaining 4 bi- monthly installment or 6 bi-
installment
4. Recovery from person leaving Malaysia
-If DG believes that a person is leaving M’sia without
paying any tax/penalty due, the DG may issue a
certificate to any Commissioner of Police or Director
of Immigration requesting a person be prevented
from leaving M’sia unless he pays all the tax.
5. Refusal of custom clearance
- where tax payable by a taxpayer carries on the
business of transporting passengers or cargo by
air or sea has remained unpaid for more than 3
months, the DG may issue a certificate to the
Customs authority (with the approval of MOF) to
refuse clearance at any port, aerodrome or airport
in M’sia until the tax is paid.
6. Recovery by suit
- if tax is unpaid within 1 month of the issue of the
demand, the DG may sue for recovery in a court of
competent jurisdiction for the tax and penalty
together with the full cost of suit.
 APPEALS
 When a taxpayer is dissatisfied with the deemed
notice of assessment or additional assessment, he
should
 write to the tax authorities to object within 30
day of the date of deemed notice of assessment
[s99(1)] stating the reasons for objection
 may appeal when submitting tax return

 Further appeals can be made to Sp Comm if the

taxpayer and the DG cannot reach an agreement on
the earlier appeal.
 Taxpayer may also exercise the right of appeal in
relation to :
 Advance assessment
- Appeals had to made within first 3 months of the
assessment year following YA which assessment
made
- Date of receipt of the assessment is not relevant
 Additional assessment
- Appeals can only made against the additional
assessment
 Amount refunded [s111(1)]
- If taxpayer dissatisfied with the amount refunded by
government, he may within 30 day notified of the
amount appeal to Sp Comm
 Finality Of Assessment
Assessment shall be final and conclusive
where no valid noticed of appeal has
been given within the time specified
(30 days)
where an agreement has been arrived
at with respect to an assessment
being appealed under section 101(2)
where an assessment has been
determined on appeal and there is no
right of further appeal
Finality Of Assessment…
where there is a valid notice of
appeal against an assessment has
been given, but the appellant dies
before the hearing of the appeal by
the Sp Comm. commenced or
completed and no personal
representative of the estate of the
deceased appellant applies to the
Sp Comm. Within 2 years after his
death to proceed with completing
the hearing
Finality Of Assessment…
The taxpayer may apply for an
extension of time from the tax
authorities if additional time is
needed for extracting and gathering
further information.
[s 97 (1) (a)]
Appeals Which Are Out Of Time
 If appeal is not made within 30 days from the date
of notice of assessment, the taxpayer can make a
written application using Form N for an extension
of time to lodge an appeal.

If the DG is satisfied that for any reasonable cause

the appellant was prevented from giving notice of
appeal, he will then give a written notice for the
extension of time. The taxpayer would be given
such extension if he is not in Malaysia, sick or
change of address or other reasonable course.
Cont..
 if the DG rejects the application, he will then
forward the application to Sp Comm. together
with the reasons why he is not agreeable to an
extension of time.

 DG inform the taxpayer in writing that he has done

so and furnish the taxpayer with a copy of the
statement and taxpayer make a written
representation within 21 days and is direct to Sp
Comm.

 Sp Comm. will decide on whether an extension

should be granted.
 Payment Of Tax
Section 103(1) & (2) of the Act provides:

(1) Tax payable for YA shall be due and payable on

the due date whether or not that person appeals
against the assessment.
(2) Where an assessment under ss 90 (3),91, 92, 96
A or 101(2), the tax payable under the
assessment, on the service of the notice of the
investment payable on the person assessed at the
place specified in that noticed

The tax implication s103(1) and (2), is that once

assessment is issued, tax must be paid
notwithstanding that an appeal is made.
Director General’s Review (S 101)
DG may review the assessment before forward to Sp
Comm.
To review the assessment, he will ask the appellant
to furnish particulars in respect of the assessment,
produce book, documents, or summon any person
for evidence and examine him on oath if necessary.
After the review, the Director may:
 Come to an agreement in writing with the
taxpayer regarding the tax payable.
 Come to an oral agreement with the taxpayer.
- DG follow up with a written confirmation
on the agreement
Cont..
- it will be deemed as an agreement if the taxpayer
does not repudiate the written confirmation
within 21 days of serving.
- if taxpayer fail to repudiate within 21 days, he may
apply to Sp Comm to set aside the deemed
agreement within 30 days from the date of the
deemed agreement.

 Serve a written proposal and the taxpayer may either

accept or reject.

 Failure to accept or reject within 30 days of service,

the written proposal is deemed to be accepted.
 Submission To Sp Comm
If the DG fails to reach an agreement
with the taxpayer, he will;
Forward the case to the Sp Comm
and,
Written a notice to inform the
taxpayer.
 Sp Comm
 Appointed by the Yang Di Pertuan Agong.
 The quorum for hearing tax appeals is 3 Sp
Comm, at least 1 of them must be judicial
person or legal experience.
 A date and place for hearing will be fixed by
giving at least 28 days notice to both parties.
 Deciding Order will be issued. It will either
confirm or discharge the assessment.
 An appeal on the point of law and fact may
be taken to the High Court, Court Appeal and
then to Federal Court if the taxpayer or DG
dissatisfied with the Deciding Order.
Cont..
The decision of the Sp Comm can only
be set aside if :
a) there is error in law or misconception
of law
b) the decision is not in line with the
evidence found in the case
c) the conclusion is not reasonable
 Appeal To Federal Court
 Federal Court can only hear an appeal from the
Court of Appeal provided such an appeal is
heard by the High Court.

 Income tax case would never be able to appeal

to Federal Court.
-It is therefore submitted that unless
amendment is made to Courts of Judicature Act,
at the time being would be the Court Of Appeal
 PENALTIES AND OFFENCES
Taxpayers owe duty and responsibility
to the government
The DG or the Court is empowered to
enforce such offences and levy
penalties where necessary
The DG may abate or remit any penalty
imposed under the Act except a penalty
imposed on conviction
Failure to furnish a return or give notice
of chargeability.
Under Section 77(1), 77A(1) or 77(3).
With Prosecution:

Fine between RM200 to RM2000 or six

(6) months’ imprisonment or both. [s
112(1)]
Without Prosecution:

Penalty of three (3) times amount of

tax.
[s 112(3)]
Cont…
Burden of Proof
Section 112(2) provides the burden of
proving that a return or a notice has been
made lies upon the accused person
Defence
In order to avoid being convicted for the
offence, the taxpayer has to show that he
has a ‘reasonable excuse’.
The burden of providing that he has a
reasonable excuse was on taxpayer.
 Cont…
 Increased Penalty
The Court is given revisionary powers to
increase it.
The Court may take into consideration the
taxpayer’s interest as well as public interest
 No prosecution
The payment of the penalty would prevent
the taxpayer being prosecuted on the same
facts
 Incorrect Return
 Scope of incorrect return:
a) Omitting or understating income.
b) Incorrect information affecting the
chargeability of tax. [s 113(1) and (2)]
 With Prosecution:
Fine between RM1000 to RM10000 and (plus)
penalty equal to twice the amount of tax
undercharged. [s 113(1)]
 Without Prosecution:
Penalty equal to the tax undercharged. [s
113(2)]
 Cont…
Shall,unless he satisfies the court that the
incorrect return or incorrect information was
made or given in good faith,be guilty of an
offence.
The defence for the taxpayer is confident of
being able to satisfy the court that the acts or
omission complained of were done in good
faith,he shall refuse to pay the penalty under
s113(2)
 Wilful Evasion
Section 114(1) of the Act provides:

“Any person who wilfully and with intent to

evade or assist any other person to evade tax
– Omits from a return made under this Act
any income which should be included other
offences.
That person shall be presumed until the
contrary is proved to have made false
statement or entry to evade tax
 Cont…
With Prosecution:

Fine between RM1000 to

RM20000 or three (3) years
imprisonment or both; and (plus)
penalty equal to three times the
amount of tax undercharged.
[s 114(1)]
 Understatement of Tax
Under Section 114(1A).
“any person who assists in, or advises with
respect to the preparation of any return
where the return results in an
understatement of the liability for tax of
another person…”
With Prosecution:

Fine between RM2,000 to RM20,000 or

three (3) years imprisonment or both
[s 112(1)]
 Leaving Malaysia without payment
of tax
 Under Section 115.
 Any person who, knowing that a certificate has
been issued under s 104
(recovery of tax from persons leaving Malaysia).
 Voluntarily leaves or attempts to leave Malaysia
without paying all the tax.
 With Prosecution:

Fine between RM200 to RM2000 or six (6) months’

imprisonment or both. [s 120]
 Power of arrest
Under section 115(2)
A police officer or immigration
officer may arrest without
warrant.
Obstruction of officers in the course
of their duties
Under Section 116.
Any person who:

a. Obstructs or refuses to permit the entry of

the DG or an authorized officer into any land,
building or place in pursuance of s 80.
Section 80 - the DG’s power to access the
buildings and documents.
 Cont…
b. Obstructs the DG or an authorized officer in
the exercise of his functions under the Act
c. Refuses to produce any book or other
document in his custody or under his control
on being required to do so by the DG or an
authorized for the purposes of the Act
d. Fails to provide reasonable facilities or
assistance or both to the DG or an authorized
officer in the exercise of his powers under this
act
 Cont…
e. Refuses to answer any question relating to
any of those purposes lawfully asked of him
by the DG or an authorized officer.
 With Prosecution:
Fine between RM1000 to RM10000 or one
(1) year imprisonment or both.
[s 116]
 Breach of confidence by classified
person
Under Section 117.
 Any classified person who in contravention of
s 138:
- Communicates classified material to
another person.
- Allows another person to have access to
classified material.
Cont…

With Prosecution:
Fine not exceeding RM4,000 or
one (1) year imprisonment or
both. [s 117]
 Offences by officials (s 118)
Under Section 118.
 Offences:
a) Demands from any person an amount in
excess of the tax or penalties.
b) Withholds for his own use or otherwise any
portion of any such tax and penalty
collected or received by him.
c) Make a false report or return (orally or in
writing) of the amount of tax and penalty
collected or received by him.
Cont….
d.Defrauds any person: embezzles any
money uses his position to deal
wrongfully with DG or any other
person.
 With Prosecution:

Fine not exceeding RM 20,000 or

three (3) years’ imprisonment or
both.
 Unauthorized Collection of tax or
penalties
Under S119:
Any person who collects or attempts to
collect tax or penalty shall be guilty of an
offence and shall on conviction.
With prosecution:

Fine not exceeding RM 20,000 or three (3)

years’ imprisonment or both.
 Failure to keep records
Under Section 119 A
To take effect on 1st January 2001.
To ensure sufficient records are kept so that
to facilitate any tax audit.
With prosecution:

Fine between RM 300 and RM10,000 or

one(1) year imprisonment or both.
 Other offences
Under section 120(1).
Any person who without reasonable
excuse:
a) Fails to comply with a notice given
under s78, 79, 80(3), 81, 84(1), 85 or 87.
Section 78 - calling for specific returns &
production of books.
Section 79 - calling for bank statement
Section 80(3) - requiring books, account
and record to be translated into national
language.
Other offences…
Section 81 - calling for information to be given in
writing.

Section 84(1)- requiring returns to be submitted by

agents.
Section 85- requiring returns by occupier of
premises.
Section 87- calling for further returns.

b) Fails to comply with an order made under s 83(1).

Section 83(1)- requiring employer to submit a
return of his employees.
Other offences…
c) Fails to give the notice required by s83(2),(3)
or (4).
Section 83(2) - employee who commenced
work for the employer.
Section 83(3) - employee is ceasing work for the
employer.
Section 83(4) - employee is about to leave
Malaysia is more than 3 months.
 Other offences…
d) Contravenes s 84(2),86(1),89 or 153(1).
A person who fails:
Section 84(2)- by agent acting for non-resident
who fails to submit quarterly returns
Section 86(1)- by precedent of partner who fail
to submit partnership returns
Section 89- inform of change of address within
3 months.
Section 153(1)- person who holds himself out
as an accountant and does not satisfy.
Other offences…
e) Fails to comply with a direction given
under s 83(5) or 107.
Section 83(5)-on retention of money
concerning departing or terminating
employees.
Section 107- to deduct tax.
 Other offences…
f) Fails to furnish an estimate in accordance with
s 107C(2), 107C(3) or 107C(4)(a)
Section 107C(2)- furnish an estimate of
company’s tax (self-assessment) within 30
days before commencement of basis period.
Section 107C(3)- the estimate is less than its
previous year’s tax payable.
Section 107C(4)(a)- submit within 3 months
from the new commencement of a business.
 Other offences…
g) Fails to render a statement or provide
information required in the statement
referred to in s 108(5).
Section 108(5)- failure to submit form R.

 With Prosecution:
Fine between RM 200 to RM 2,000 or six
(6) months’ imprisonment or both.