Tax filing — get it right to avoid disputes

THE self-assessment system introduced in 2011 has become a major compliance programme for tax audits. Frustration sets in among taxpayers due to lack of competitiveness in providing convincing rationale for tax audit adjustments that necessitates them to declare, calculate and keep records for audit purposes.

Regulatees, who are not able to comprehend computational aspects of tax filing, face risks of being slapped with penalties for failing to achieve tax-filing efficiency.

While the Inland Revenue Board (IRB) could consider a simpler approach to assessment that forgives honest mistakes done by filers during declaration, there are much simpler ways to avoid being punished at all, explains Deloitte Tax Services Sdn Bhd.

“When it comes to paying taxes, taxpayers must make it their highest priority to get it right the first time and avoid making offences that will lead to penalties.

“As a tax professional, we are very particular in terms of the order. First, we got to look at whether it is deductible. Next, we will see if there are any deductions, relief or rebate. There is an order and it is spelt out clearly in the Income Tax Act,” said Deloitte global employer services ED Chee Ying Cheng.

Under the self-assessment system, it is the sole responsibility of the taxpayers to compute chargeable income and tax payable, and pay any balance of tax due.

“If one did not do it right the first time, subsequently, if one’s file is picked up for audit, one will have to pay a penalty,” she said to The Malaysian Reserve recently.

According to the IRB, a tax audit is an examination of a taxpayer’s business accounts and financial affairs to ascertain that the tax reported and paid is correct and in compliance with tax laws and regulations.

“There are two types of audit by the IRB, namely desk audit and field audit. Desk audits are concerned with straightforward issues or tax adjustments, which are easily dealt with via correspondence, while a field audit involves checking of the taxpayer’s business, as well as non-business records,” said Chee.

Of desk audits and field audits, the first is held at the IRB office and a taxpayer may be called for an interview if further information is required, while the latter takes place at a taxpayer’s premise where prior notice is given.

A taxpayer can be subjected to offences, such as making incorrect returns by omitting or understating any income required or giving any incorrect information concerning any matter affecting his chargeability.

If an individual is guilty of the offence, one is liable to a fine of not less than RM1,000 and not more than RM10,000, and shall pay a special penalty of double the amount of tax which has been undercharged.

Additionally, if no prosecution has been instituted in respect of the incorrect return or incorrect information, the DG of IRB may impose a penalty equal to the amount of the tax which has been undercharged.

Chee said an individual must establish if one’s income is taxable, after which one can claim all the various types of relief or deduction to reduce the taxable income.

Chee elaborated on tax deductions, particularly from an individual tax perspective.

“We received a lot of questions, for example, if an individual can claim anything as a deduction and if the deduction is directly offset against one’s income, what are the types of expenses one has to incur in order for one to generate this income?

“For example, what type of expenses can I incur so that I can claim a deduction against my employment income? The deductions could be very limited unless it is directly incurred for my profession such as professional subscriptions. I can’t have a double-dip. If I claim against my company’s expense reimbursement policy, I can’t claim against my tax, same goes to the professional subscriptions,” she said.

She also explained about the increase in tax relief for life insurance and Employees Provident Fund (EPF) to RM7,000 from RM6,000 the previous year.

In the past, from the combination of life insurance and EPF, an individual can claim RM6,000 regardless if one spent 100% on life insurance or EPF. Now, it is split to RM3,000 for insurance and RM4,000 for EPF.

“This will impact individuals who do not buy any insurance. One can now only claim the EPF if they do not have any insurance policy,” she said.

However, she said the EPF relief is rather low, even though it is to encourage the nation to save for their pension in the future.

“Basically, every employee contributes to the EPF, but will only receive RM4,000, it is a very low amount. It doesn’t jive. In the future, it must be a significant raise with impact because if it’s just RM1,000 or RM2,000 (raise), it doesn’t make a lot of difference,” Chee added.