SELF-ASSESSMENT SYSTEM ON INDIVIDUAL
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.
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
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
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
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.