SELF-ASSESSMENT SYSTEM FOR COMPANIES

Introduction

Prior to 2001, Malaysia adopted an official assessment system whereby tax payers are assessed to income tax by the IRB based on the tax return filed by them.

The self-assessment system is essentially a process by which taxpayers are required by law to determine the taxable income, compute the tax liability and submit their tax returns based on tax laws, policy statements and guidelines issued by the tax authorities.

FURNISHING OF TAX ESTIMATES

Estimation of tax payable (Form CP 204)

Pursuant to Section 107C (3) of the Income Tax Act, 1967 (ITA), every company is required to furnish an estimate of income tax payable in a “prescribed form” (Form CP 204) not later tan 30 days before beginning of the basis period. The estimated tax payable (submitted via Form CP 204) cannot be less than the estimated or revised estimated tax payable for the immediate preceding year of assessment.

The instalments, if any, are due on or before the 10^th day of each month beginning from the second month after the start of the Company’s basis period.

Revision of the estimated tax payable

Pursuant to Section 107C(7) of the Act, any revision to the estimated tax payable furnished under the Form CP 204 can be made in the sixth (6^th) or ninth (9^th) month, or in both months of the basis period as provided under Section 107C(7) of the Act.

New Company’s tax estimate

Where a company commences business operation in a year of assessment, it is required to furnish its estimated tax payable to the Inland Revenue Board (IRB) in the prescribed Form CP204 within 3 months from the date of commencement of business. The estimated tax must be paid in equal instalments (based on the remaining months in the basis period) by the 10th day of every month beginning from the sixth month of the basis period of that year of assessment. Please be informed that the IRB may impose a penalty for failure to comply with the above requirement.

Instalment payments

The instalments, if any, are due on or before the 10th day of each month beginning from the second month after the start of the Company’s basis period. Under Section 107C(9) of the Act, failure to remit the instalment payments by the due date will result in a 10% penalty being imposed.  The taxpayer is required to self-compute the 10% penalty and remit it to the IRB together with the instalment payment owing as soon as the due date expires.

It has been a change in the IRB procedures concerning the issuance of the notice of instalment scheme (Form CP205) for the year of assessment. From the year of assessment 2002 onwards, the IRB will not issue a Form CP205 to a company where the estimated tax payable for the year of assessment is:

1.         same as stated for the year of assessment; or

2.         higher than the stated for the year of assessment.

The remittance slips (Forms CP 207) must be enclosed with the instalment payment made. All instalments need to be remitted on a timely basis. 

Payment of balance of tax

With effect from YA 2001, the balance of tax payable (after taking into account the monthly instalments paid) under the deemed assessment provision will be due and payable on the due date of the submission of the tax return (ie the last day of the sixth month from the date following the close of the accounting period) by the company. Where the company fails to pay the tax by the due date, the balance unpaid will be increased by 10% and will be recovered as if it were tax due and payable. Any balance remaining unpaid upon the expiration of 60 days from the due date will be further increased by 5%.

Penalties on underestimates of income tax payable

The failure to furnish an estimate by the due date and in accordance with the requirements of Section 107C of the Act, is an offence under Section 120(1)(f) of the Act.  Upon conviction, the taxpayer will be liable to a fine of not less than RM200 and not more than RM2,000 or to imprisonment for a term not exceeding 6 months or to both.

In addition, it is important to note that where the tax payable under an assessment exceeds:

the revised estimate of tax payable for that year of assessment, or
if no revised estimate is furnished, the estimate of tax payable for that year of assessment,

by an amount of more than 30% of the tax payable under the assessment, then the difference which exceeds 30% of the tax payable under the assessment is subject to a penalty of 10% pursuant to Section 107C(10) of the Act. 

Penalties on late payment of tax instalments

Under Section 107C(9) of the ITA, where an instalment payment is not paid by the 10^th of the month following which is an instalment is due, the amount unpaid shall be increased by 10% without any notice being served.

Penalty for failure to furnish tax estimate

The companies which fail to file in the estimated tax payable will subject to a penalty based on the following table:-