Essay: Malaysian Taxpayers' Key Role In Tax Compliance

Key Responsibilities of Taxpayers

Discusss about the Key Responsibilities of Malaysian Taxpayers in the Process of Tax Compliance.

In the recent past, the Malaysian tax system introduced a new tax system by shifting from the Official Assessment System (OAS) and adopting the Self-Assessment System (SAS). It is worth pointing out that the new system brought about a considerable shift of the responsibility from the government to the taxpayers (both individual and corporate) with regards to their compliance objectives (Sapiei & Kasipillai, 2013). Specifically, the new systems created additional compliance responsibilities for the taxpayers such as the duty to report, compute, and pay their taxes according to the Malaysian tax laws (Okello, 2014). Additionally, the taxpayers are also responsible for maintaining proper records as well as retaining the records in safe custody. The key objective for introducing the new tax system was to increase the collection rate, encourage voluntary compliance among citizens and minimize the costs of tax collection.

Individual Taxpayer.

According to Malaysian tax law S77(3), whenever a person arrives in the country during a calendar year, and he or she is liable to tax to in Malaysia for that given year or for the year that follows, they should inform the DG that they will be so chargeable within a period of two months after their arrival. It is worth pointing out that this responsibility is applicable despite the fact that the individual may be a tax resident or a non-tax resident in the country. Notably, this duty to notify the DG on chargeability applies as long the person gains income that is subject to tax in the country.

Corporate taxpayers

Unlike the individual taxpayer, the corporate taxpayer is not charged with the responsibility of initiating a notification of chargeability to the Director General according to the tax rules and regulations of Malaysia.

Furnishing Returns

Individuals

According to S77 (1) every resident with a chargeable income in a particular year of assessment must provide a tax return in the recommended form B or Form BE (ACCA Global, n.d.). Important to note is that this furnished tax return must also be filed by 30^th June of the following year if he operates a business (ACCA Global, n.d.). Alternatively, the same may be filed on 30 April of the next year if the individual earns income from other non-business income generating activities (ACCA Global, n.d.).

Corporate

Likewise, in S77A(1) corporate entities such as LLPs, companies and trusts are charged with the responsibility of supplying their annual tax returns within 7 months after the close of their financial year that constitutes the basis period for the period of assessment. Additionally, a corporate entity is expected to file its tax returns through an electronic transmission or medium. Furthermore, these returns must be audited by a professional accountant (ACCA Global, n.d.).

Notification of Chargeability

Pay tax on time by monthly tax deductions or installments

Individuals

According to the Malaysian tax laws, individuals are subject to monthly tax deductions (MTD) from their monthly emoluments. For those people who earn their income from sources other than salaries, the Director General may approximate their taxable amount based on the previous period’s tax payable and then call for them to pay the estimate in installments at given due dates. In the event that these installments remain unpaid 30 days after the due date, the taxpayer is charged a penalty equal to 10 percent of the unpaid amount (Choong, 2017).

Corporate 

All corporate entities are required to provide their tax estimates to the tax authority less than 30 days before the start of the tax period for that year. This tax approximation is required to be at least 85 percent of the tax paid in the directly preceding year (Josef, 2017). Also, the law requires that this estimate be paid in 12 equal installments beginning from the 2^nd month of the payment period (Josef, 2017).

Notify Any Change of Address

Individual

According to S89, every individual taxpayer in the country is charged with the duty to notify the Director General of any changes in their address within three months of the shift. The law also requires that such a notification be made in writing.

Corporate

Just like the individual, all corporate units are required to inform the Director General of any changes in their address within a period of three months after they move under S89 (ACCA Global, n.d.). Also, the company must relay this information in form of writing.

Keep Records, Documents and Receipts

Individuals

S82A of the Malaysian tax laws requires that every person who is required to furnish their return of income must keep sufficient documents such as statements of income for 7 years from the end of the relevant year of filing (Hui Xin et al., 2015).

Corporate

In addition to maintaining sufficient documents, S82 (1) requires that corporate entities must keep relevant records of books of accounts, vouchers, invoices, receipts, and any other records specified by the Director General for 7 years after the end of the period of assessment (Kasipillai, 2017).

Complexity of the Income tax system

Individuals and corporate entities often seek the assistance of tax agents due o the complex nature of the tax system. As such, tax agents are experts and understand the various laws are regulations that govern the filing of tax returns for individuals and businesses, thereby reducing the possibilities of non-compliance or filing of the wrong tax returns.

Furnishing Returns

High cost of non-compliance

The Malaysian tax law has set a strict penalty for individuals and companies that are non-compliant to paying their taxes. Currently, the cost of non-compliance is significantly bigger than the cost of compliance. As a result, individuals and corporate entities are more keen on filling correct returns to avoid penalties and, therefore, seek the assistance of tax agents to help them avoid the high cost of incompliance.

Tax agents help save money

Tax agents are professionals in the field of tax and can easily detect instances where a significant deduction or tax credit is warranted for the individual or an organization. Therefore, firms and individuals seek the guidance of tax agents to assist them in tax filling as well as capture possibilities of tax breaks, credits and deductions that may help them save on tax costs (“Top Ten Reasons,” 2013).

Saves on Time and energy

The process of calculating and filing for taxes at the individual and corporate level can be very time consuming even for professionals. Thus, when an inexperienced person tries to perform the task it may be very time consuming and frustrating (Vetter, 2017). For this reason, individuals and corporate entities prefer to hire professional tax agents to take care of their tax responsibilities in order to save on time which could be used to perform other important tasks.

Help Plan for the Future

Aside from filing taxes, tax agents offer professional and expertise advice on how the individual or corporate entity can plan for the future. As such, they can pull reports from the past and examine the seasonality of income and provide an objective insight on how to maintain a stable stream of income. Therefore, people and corporate units hire tax agents as they benefit them by helping them plan objectively for the future.

Conclusion

All in all, all factors taken into consideration, both the corporate and individual Malaysian taxpayer are charged with various key responsibilities in the process of tax compliance. Specifically, they are responsible for notifying the DG for chargeability, furnishing tax returns, keeping sufficient business records and documents, paying taxes on time and notifying the DG on any changes in their address. Also, corporate and individuals hire tax agents due to factors such as high cost of non-compliance, saves on time and energy, complexity of Malaysian tax laws and they help in saving money

References

Aspects of tax administration in Malaysia. (2018). ACCA Global. Retrieved 4 April 2018, from https://www.accaglobal.com/ca/en/student/exam-support-resources/professional-exams-study-resources/p6/technical-articles/tax-admin-my1.html

Choong, K. F. (2017). Malaysian Taxation: Principles and Practice (23rd ed.). KL: Infoworld.

Hui Xin, M.K.,  Khai, K. G., Fong, L. S., & Chen, N. H. (2015). Factors Affecting Individual Taxpayers’ Compliance in Malaysian Tax Filing System. The International Journal of Business & Management, 3(9), 339-345.

Josef, V. (Ed.) (2017). Malaysia Master Tax Guide, (34th ed.). KL: CCH Asia PTE Limited.

Kasipillai, J. (2017). A Guide to Malaysian Taxation (4th ed.). KL: McGraw Hill Education (Malaysia).

Okello, A. (2014). Managing Income Tax Compliance through Self Assessment. IMF. Retrieved 4 April 2018, from https://www.imf.org/external/pubs/ft/wp/2014/wp1441.pdf

Sapiei, H., & Kasipillai, J. (2013). Impacts of the Self -Assessment System for Corporate Taxpayers. American Journal of Economics, 3(2), 75-81. Retrieved from https://umexpert.um.edu.my/file/publication/00006156_95497.pdf

Top Ten Reasons to Hire a Professional Tax Preparer. (2013). CPA Practice Advisor. Retrieved 4 April 2018, from https://www.cpapracticeadvisor.com/news/10893406/top-ten-reasons-to-hire-a-professional-tax-preparer

Vetter, A. (2017). 5 reasons why your business needs an accountant. (2013). The Business Journals. Retrieved 4 April 2018, from https://www.bizjournals.com/bizjournals/how-to/growth-strategies/2015/04/5-reasons-why-your-business-needs-an-accountant.html