SELF-ASSESSMENT SYSTEM
A. Extension of Self-Assessment
System to Entities Other than Companies
While provisions are already in the Income Tax Act, 1967 (the Act) to
implement self-assessment for companies from January 2001, the Income Tax (Amendment)
Act 2002 (Act A1151) seeks to extend the Self-Assessment System to individuals,
partnerships, trust bodies, co-operative societies and executors of deceased estates.
Some of the major legislative changes affecting the taxation of the above persons
under self-assessment are:- |
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| 1. |
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Basis Periods [Section
21] |
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General Provision |
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In line with the shift to the Self-Assessment
regime for individuals, Section 21 has been amended to simplify the determination
of basis period.
The amendment provides that the basis year of a person other than a company, trust
body and co-operative society for a year of assessment shall constitute the basis
period for that year of assessment. The amendment reinforces the Public Ruling Nos.
4/2001 and 6/2001 issued by the Inland Revenue on 30th April 2001.
The amendment is effective from year of assessment 2004. |
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Specific Direction of Basis Period
for Year of Assessment 2002
[Section 27 of the Amendment Act]
Currently, where any person has prepared accounts in respect of his business
for a period of 12 months ending on a day other than 31st December and there is,
consequent to a change of accounting year end, a failure to prepare accounts ending
on a corresponding day in a year of assessment, the Director General (DG) has the
authority under the existing Section 21(3) to direct the basis period for the year
of assessment in which the failure occurs or for that year and the following year
of assessment.
A special provision has been introduced to disregard any change of accounting period
in the basis period for year of assessment 2002 where a person, other than a company,
trust body or co-operative society who prepares his accounts for a period of 12 months
ending on a day other than 31st December in the basis year 2001. The basis period
for year of assessment 2002 shall be the basis period as if there is no change of
accounting period in year 2002.
Further, the basis period for year of assessment 2003 shall be the period commencing
on the day following the last day of the basis period for year of assessment 2002
to 31st December 2003.
This amendment will have effect for year of assessment 2002 only.
Example:
PC & Co., which normally makes up its accounts to 30th November, changes
its financial year end to 28th February in 2003. The accounts are made up as follows:-
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Accounts
Period
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No. of Months
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01.12.2000 to 30.11.2001
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12
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01.12.2001 to 28.02.2003
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15
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01.03.2003 to 28.02.2004
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12
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As the failure year is year 2002, the DG will direct the basis period for years of
assessment 2002 and 2003 in accordance with the existing Section 21(3). However,
there is a special provision introduced in the Amendment Act to disregard
any change of accounting period in year 2002 so as to prevent that person from avoiding
to pay tax by taking advantage of the provision for determining the basis period
for year of assessment 2003 as provided in the transitional provisions. The
direction of basis period considered in the Public Ruling No. 6/2001 is ignored and
the basis period for the respective years of assessment 2002 and 2003 shall be as
follows:-
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Year of Assessment
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Basis Period
(Public Ruling No. 6/2001*)
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Basis Period
(Special Provision)
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2002
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01.12.2001 to 31.07.2002
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01.12.2001 to 30.11.2002
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2003
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01.08.2002 to 28.02.2003
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01.12.2002 to 31.12.2003
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2004
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01.03.2003 to 28.02.2004
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01.01.2004 to 31.12.2004
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* Public Ruling direction disregarded. |
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Basis Period for Year of Assessment
2003
[Section 29 of the Amendment Act]
For year of assessment 2003 only, the amendment in the transitional provisions
varies the direction of basis period considered in the Public Ruling No. 6/2001 issued
by the Inland Revenue on 30th April 2001.
| (a) |
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The basis year for year of assessment
2003 for a source of income shall constitute the basis period for that year of assessment.
Example :
AB & Co. prepares its accounts from 01.01.2003 to 31.12.2003.
The basis year ending 31.12.2003 is the basis period for the year of assessment 2003
for a source of income of AB & Co. |
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| (b) |
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Where the accounts are prepared in
respect of his business for a period of 12 months ending on a day other than 31st
December in the basis year 2003, the period which begins from the first day of that
accounting period to 31st December 2003 shall form the basis period for that business
of that person for year of assessment 2003.
Example :
Accounts prepared from 01.07.2002 to 30.06.2003 (12 months).
The basis period of that business for year of assessment 2003 is from 01.07.2002
to 31.12.2003. |
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| (c) |
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Where a person commences a business
in the basis year of 2002 and the first set of accounts prepared in respect of that
business ends on a day other than 31st December 2002, the basis year of 2003 shall
be the basis period for year of assessment 2003. |
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| (d) |
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Where a person becomes a partner
in an existing partnership or a partner of a person who is carrying on a business
as a sole proprietor on a day in the basis year of 2002 or 2003 and that day falls
within the period where the accounts of the business of the existing partnership
or of the business of the sole proprietor have been made up to its normal accounting
date ending on a day in the basis year of 2003, the period which begins from the
day that person becomes a partner to 31st December 2003 shall constitute for that
business of that person the basis period for year of assessment 2003. |
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| (e) |
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Where a person has made up the accounts
of his business for a period of 12 months ending on a day other than 31st December
in the basis year of 2002 and that period constitutes the basis period for year of
assessment 2002, and there is a failure to make up the accounts of that business
ending on a corresponding day in the following basis year, the period which begins
on the day after the end of that basis period to 31st December, 2003 shall constitute
for that business of that person the basis period for year of assessment 2003.
Example:
PC & Co., which normally makes up its accounts to 30th September, changes
its financial year end to 31st March in 2003. The accounts are made up as follows:-
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Accounts
Period
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No. of Months
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01.10.2001 to 30.09.2002
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12
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01.10.2002 to 31.03.2003
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6
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01.04.2003 to 31.03.2004
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12
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The direction of basis period considered in the Public Ruling No. 6/2001 is disregarded
and the basis period for year of assessment 2003 shall in accordance with the transitional
provisions be directed as follows:-
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Year of Assessment
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Basis Period
(Public Ruling No. 6/2001*)
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Basis Period
(Transitional Provision)
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2003
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01.10.2002 to 31.03.2003
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01.10.2002 to 31.12.2003
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* Public Ruling direction disregarded. |
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| 2. |
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Deduction for Children [Section
48(4)] |
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Currently, where 2 or more individuals
are entitled to claim relief in respect of the same child, the child relief due is
apportioned between the claimants in the ratio of each individual's share of payment
of maintenance over the total payments of maintenance made by the claimants :-
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Payment by a claimant
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Child relief
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X
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-------------------------------------------------
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Total payments
by the claimants
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It has been amended that where 2 or more individuals are each entitled to claim a
deduction for relief in respect of the same child, the allowance given to each of
those individuals is now 50% of the appropriate deduction. This will simplify the
amount to be claimed by each.
The amendment is effective from year of assessment 2004. |
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| 3. |
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Submission of Income Tax Return
[Section 77 and New Section 77A |
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Presently, a person other than a
company, is required to furnish a return in the prescribed form to the DG within
a time specified in the notice (not being less than 30 days from the date of service
of the notice) for the purpose of ascertaining the chargeable income for that year.
The new Section 77(1) requires every person other than a company, trust body or co-operative
society, chargeable to tax for a year of assessment or if he does not have chargeable
income but has chargeable income or has filed a return in the immediately preceding
year of assessment, to furnish to the DG a tax return in the prescribed form before
30th April in the year following the year of assessment unless specifically waived
by the DG.
The new Section 77A requires every trust body or co-operative society to furnish
to the DG a return in a prescribed form for each year of assessment within 6 months
from the date following the close of the accounting period which constitutes the
basis period for the year of assessment.
Example :
| Financial year end |
| (of trust or co-operative society) |
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31st December 2004 |
| Return Form due by |
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30th June 2005 |
Where there is a change in the accounting period of a trust body or co-operative
society such that the accounts are not closed on any date in a particular year, resulting
in the trust body or co-operative society being unable to comply with the above requirement,
a return for the year and the year of assessment in which the accounts are closed
shall be furnished within 6 months from the date of the close of the accounting period.
The amendment further provides that the returns furnished shall specify the chargeable
income and the amount of tax payable on the chargeable income as well as particulars
as may be required by the DG.
The amendments are effective from year of assessment 2004. |
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| 4. |
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Individuals - New Arrivals [Section
77(3)] |
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The above Section is amended to require
an individual who arrives in Malaysia during a year of assessment if he is chargeable
to tax in that year or if he is not so chargeable but is chargeable to tax in the
following year of assessment to submit a notification of chargeability to the DG
within 2 months of his arrival in Malaysia.
The above amendment is effective from year of assessment 2004. |
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| 5. |
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Return by Partnership [Section
86] |
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Currently, a partnership is required
to file a tax return in the prescribed form to the DG within a time frame specified
in the notice (not being less than 30 days from the date of service of the notice)
or which has not been required within 3 months after the beginning of that year to
furnish a return, shall within 14 days after the said period submit a return to the
DG.
It is amended that a partnership shall furnish to the DG a return in a prescribed
form for each year of assessment not later than 30th April in the year following
that year of assessment.
The amendment is effective from year of assessment 2004. |
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| 6. |
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Raising of an Assessment [Section
90] |
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Currently, for an individual, trust
body or co-operative society, the DG will issue a notice of assessment after reviewing
the tax returns filed by them.
Under the amendment to Section 90, the DG shall be deemed to have made an assessment
in respect of an individual, trust body or co-operative society on the day the return
is furnished. The chargeable income and the tax shall be the respective amounts as
specified on the said return furnished and deemed to have been served on the day
on which the DG is deemed to have made the assessment.
In addition, the DG is empowered under this section to determine the amount of the
chargeable income and to raise a best judgement assessment where a person has not
furnished a return. The above assessment does not affect any liability otherwise
incurred by that person by reason of its failure to deliver the return.
The amendment is effective from year of assessment 2004. |
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| 7. |
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Payment of Tax [Section
103] |
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Presently, for a person other than
a company, the balance of tax payable on an assessment raised under a notice of assessment
after deducting the tax instalments paid shall be settled within 30 days from the
date of notice.
It has been amended that the said balance of tax payable must be settled by the following
due dates:-
| For trust body of co-operative society |
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The last day of the sixth month from
the date following the close of the accounting period. |
| For individual or partnership |
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30th April in the year following
the year of assessment. |
Where any tax is not paid by the due date, a penalty of 10% is imposed on the unpaid
tax and if any balance of the tax so increased by the penalty remains unpaid upon
expiration of 60 days from the due date, an additional penalty of 5% is imposed on
the balance unpaid.
Assessments, additional, advance and composite assessments may continue to be issued
to trust body, co-operative society, partnership or individual. The present due date
of payment and penalty for late payment continue to apply. The DG may in his discretion
for any good cause shown remit penalty wholly or partially.
The amendment is effective from year of assessment 2004. |
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| 8. |
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Payment by Instalments for Individuals
[Section 107B] |
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Currently, every person chargeable
to tax for a year of assessment, other than an individual to whom Section 107 applies,
shall make payment by instalments on account of tax which is or may be payable at
such times and in such amount as the DG may direct, whether or not the tax has been
assessed.
Under the amendment, individuals shall be required to make payments by instalment
at such time and amount as the DG directs on account of tax payable, excluding tax
in respect of gains or profits from an employment.
Under the existing subsection 107B(4), where an individual requests to revise the
instalment payment issued by the DG and the tax payable under an assessment exceeds
the total of the revised instalments payable by an amount greater than 30% of the
tax payable under the assessment, a penalty of 10% shall be imposed on the excess
over 30% of the tax payable under the assessment. A proviso is introduced so that
in computing the tax payable of an individual whose income includes gains or profits
from an employment, for the purposes of Section 107B(4), the tax payable under
an assessment for that year of assessment shall be reduced by the amount of tax which
is attributable to those gains or profits and determined in accordance with the formula
:-
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where
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A
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is his statutory income in respect
of gains or profits from employment for a year of assessment; |
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B
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is his total income for that year
of assessment; |
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C
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is his tax payable for that year
of assessment. |
The above takes into consideration that compulsory schedular tax deductions are made
and remitted to the Inland Revenue by employers on behalf of their employees in respect
of those gains or profits from the employment.
Example:
An individual is assessed to tax for year of assessment 2004 on his income
from employment and rental source as follows:-
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RM
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| Statutory income |
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| - Employment |
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113,000
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| - Rental |
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50,000
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| Total income |
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163,000
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====
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| Tax assessed |
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27,975
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| Estimated tax paid by instalments
under Section 107B(1) |
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4,000
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====
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| Calculation of tax attributable to
employment income under Section 107B(4A) is: |
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113,000
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163,000
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X
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27,975
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19,394
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| Total tax assessed [A + B] |
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27,975
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| Less: Tax attributable to employment
income |
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19,394
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8,581
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| Less: Estimated tax paid by instalments |
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4,000
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| Difference |
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4,581
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| 30% of RM8,581 (on rental income) |
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2,574
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| Excess |
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2,007
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| Penalty of 10% on excess under Section
107B(4) |
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200.70
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The amendments are effective from year of assessment 2004. |
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| 9. |
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Estimate of Tax Payable and Payment
by Instalments Extended to Trust Bodies and Co-operative Societies [Section
107C] |
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Furnish Estimate of Tax Payable |
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Currently, every company shall for
each year of assessment, furnish to the DG an estimate of its tax payable. The estimate
of tax payable shall be made in the relevant prescribed form and furnished to the
DG not later than 30 days before the beginning of the basis period for a year of
assessment. The estimate of tax payable for a year of assessment shall not be less
than the revised estimate or where no revision is made, the estimate of tax payable
for the preceding year of assessment. The estimated tax payable for a year of assessment
must be paid in equal monthly instalments depending on the number of months in the
basis period, by the tenth day of a calendar month beginning from the second month
of the basis period.
It has been amended that the application of the provisions under Section 107C on
the requirement to furnish estimate of tax payable and payment by instalments for
companies be extended to trust bodies and co-operative societies. The amendment will
have effect from year of assessment 2004.
Amount of Estimated Tax Payable
Currently, the estimate of income tax payable by a trust body and co-operative
society is based on the tax payable for the preceding year i.e. estimate for year
of assessment 2001 is based on the tax payable for year of assessment 2000 (current
year basis).
For year of assessment 2004, a special provision has been included in Section 26
of the Amendment Act that the estimate of tax payable to be furnished by trust bodies
and co-operative societies shall not be less than the tax payable for year of assessment
2002. However, if the tax for year of assessment 2002 has yet to be determined, then
the estimate of tax payable for year of assessment 2004 to be furnished to the DG
shall not be less than the tax payable for year of assessment 2001. Pending the implementation
of the Self-Assessment System in year of assessment 2004, trust bodies and co-operative
societies will continue to pay tax in advance based on the instalment scheme issued
by the Inland Revenue.
The above amendment will apply to year of assessment 2004 only.
Balance of Tax Instalments Subsequent to Revision of Estimate
Previously, the remaining instalments after a revision of the estimate is made
in the sixth month of the basis period for a year of assessment shall be the difference
between that revised estimate and the amount of instalments that have been paid for
a year of assessment.
It has been amended that the remaining instalments after revision of the estimate
shall be the difference between that revised estimate and the amount of instalments
that is payable in a year of assessment prior to the revised estimate.
In addition, a new subsection 107C(11A) is introduced to make it clear that tax can
be collected under Section 103 and the payment of that tax can be enforced by way
of civil suit under Section 106 against a person to whom Section 107C applies.
These amendments have effect from year of assessment 2001. |
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| 10. |
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Tax Charged where Basis Period
Exceeds 12 Months
Transitional Provisions [Section 30 of the Amendment Act] |
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The basis period for year of assessment
2003 for a person other than a company, trust body and co-operative society shall
begin on the day after the end of the basis period for year of assessment 2002 to
31st December 2003 and hence having a basis period exceeding 12 months as illustrated
in examples to item 1 above, if that person prepares the accounts in respect of his
business:-
| (a) |
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for a period of 12 months ending
on a day other than 31st December in the basis year 2003; or |
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| (b) |
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for a period of 12 months ending
on a day other than 31st December in the basis year 2002 and that period constitutes
the basis period for year of assessment 2002 and there is a failure to make up the
accounts of that business ending on a corresponding day in the following basis year. |
It has been amended that where the basis period of that person from any source or
sources consisting of a business for year of assessment 2003 is more than 12 months
and that business has statutory income, the tax charged on the chargeable income
of that person for year of assessment 2003 shall be the total of:-
| (a) |
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the tax charged on the chargeable
income from all sources of income of that person for a period of 12 months; and |
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| (b) |
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the tax charged on the chargeable
income from all sources consisting of a business of that person in respect of the
remaining months (which is the number of months in the basis period from a source
or sources consisting of a business for year of assessment 2003 reduced by 12 months). |
The amendment will apply to year of assessment 2003 only. |
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| 11. |
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Tax Rebate for Individuals
Transitional Provisions [Section 31 of the Amendment Act] |
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Currently, a tax rebate is given
to an individual with a chargeable income of RM35,000 and below. The tax rebate is
RM350 for the individual and RM350 for his wife who is not assessed separately.
It has been amended that where the basis period of a person from any source consisting
of a business for year of assessment 2003 is more than 12 months and the chargeable
income of that person for a period of 12 months does not exceed the ceiling of RM35,000,
the tax rebate of RM350 will be deducted against the tax charged on the individualís
chargeable income for that year of assessment. In addition, since the basis period
for that year of assessment is more than 12 months, a proportion of the tax rebate
would also be granted where the chargeable income of the remaining months (i.e. number
of months in the basis period from a source or sources consisting of a business for
year of assessment 2003 reduced by 12 months) does not exceed RM35,000 and is determined
as follows:-
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where
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A
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is the remaining months, or in the
case of 2 or more businesses, whichever of those businesses that has the longer remaining
months; |
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B
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is the amount of rebate under Section
6A(2). |
However, the proportion of rebate shall not exceed the amount of tax charged for
the remaining months.
Example :
An individual has a business source and closes his accounts on 30th June.
His basis period for year of assessment 2003 as determined under Section 29 of the
Amendment Act is 01.07.2002 to 31.12.2003 (18 months) and the chargeable income for
the period is RM65,000. The chargeable income for a period of 12 months (determined
in the manner under Section 30 of the Amendment Act) is RM34,000.
| Tax Payable |
RM
|
RM
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| 12 - month period (01.07.2002 - 30.06.2003) |
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| Income tax of first |
20,000
|
475.00
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| Income tax on balance of |
14,000 @ 7%
|
980.00
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| Chargeable income for 12 months period |
34,000
|
1,455.00
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==========
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==========
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| Remaining months (01.07.2003 - 31.12.2003) |
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| Income tax of first |
20,000
|
475.00
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| Income tax on balance of |
11,000 @ 7%
|
770.00
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------------------
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| Chargeable income in respect of remaining
months |
31,000
|
1,245.00
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==========
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==========
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| Tax charged for 12 - month period |
|
1,455.00
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| Tax charged for remaining months |
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1,245.00
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2,700.00
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| Less : Rebate under Section 6A(2) |
350.00
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Rebate in respect to remaining months
6/12 x RM350.00
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175.00
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(525.00)
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------------------
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| Total tax payable for year of assessment
2003 |
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2,175.00
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==========
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This amendment will have effect for year of assessment 2003 only. |
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