SELF-ASSESSMENT SYSTEM ON INDIVIDUAL
 

Objective

The Purpose of Self-Assessment is to modernise and upgrade the tax administrative system in the country. It creates an efficient tax system, speeds up the collection of tax and improves the rate of tax compliance.

What is self assessment

Self-Assessment is a method whereby a taxpayer is responsible for calculating his own tax and making payment within a specified period.

Self-Assessment is a total process change from the previous formal assessment system. Under the formal assessment system, taxpayers are required to declare their Incomes in the Return Form, submit the Return Form to the Inland Revenue Board (IRB) and the IRB will review, may or may not adjust the income reported, then raise the assessment through a Notice Form J. The Notice of Assessment (Form J) is sent to the taxpayer and based on the tax raised in the form J, payment must be made within 30 days.

Under Self-Assessment System (SAS), taxpayers are completely responsible in calculating their own tax which have to make the necessary arrangements to pay the tax in a specified manner, no notice will be issued by IRB. The onus to file correct tax returns shifts to the taxpayers. The Revenue Authorities will be given wider powers to conduct field audits to ascertain the correctness of the tax returns submitted and hefty penalties can be expected to be imposed where income is under declared or understated.  The SAS will affect taxpayers in the following ways:

a)           The costs of tax compliance will increase in view of the more detailed work required in preparing the tax returns and computations to meet the requirements of the tax law.

b)            Taxpayers will have to ensure that the tax returns are completed fully and as accurately as possible.

c)           There will be more emphasis on record examination.  Records must be maintained to support the transactions undertaken and be available for Revenue’s tax audit.  Insufficient records or the absence of records will be detrimental to taxpayers.

d)            Paying tax based on current year’s income will require a good accounting system that can generate regular monthly statements to enable the taxpayers to make their estimated tax payments accurately.  The practice of waiting until the end of the financial year to prepare the accounts will no longer be feasible.

e)          Related party transactions must be properly documented or supported by agreements.  Transfer pricing issues must be addressed to ensure that “arms-length” principle is always observed.

f)             Accounting system must be reviewed to ensure that the new requirement of record keeping in compliance with the tax law are in place and the information can be readily retrieved in a form suitable for tax purposes.

g)            Taxpayers will have to be more transparent and transactions undertaken must be properly explained to the Revenue where necessary.  The past practice of waiting for the Revenue to raise queries on items in the accounts will be done away with and taxpayers are expected to ensure that all the required tax adjustments are made in accordance with the tax laws.  If it is subsequently found that certain required adjustments have not been made, hefty penalties will be imposed on the tax shortfall.

h)            In view of the above, it is vitally important that efforts must be made to upgrade the management information system of your business, which will also include strengthening the accounting department (if any) to meet the expectations of the SAS.