TAXES cannot be collected without a formal assessment. All taxpayers must submit the tax returns provided for in legislation in the prescribed forms managed by the Inland Revenue Board (IRB). Once an assessment has been issued, the taxpayer has 30 days to settle the tax.
With the introduction of the self-assessment system, it is the responsibility of the taxpayer to compute the taxable income and submit the tax return to the IRB, which automatically becomes the “assessment”. This is a generic position for the submission of annual tax returns for all taxpayers.
However, in addition to annual tax returns, the IRB can raise other types of assessment for various purposes.
The following are the common types of tax assessments that taxpayers may encounter under the Income Tax Act 1967.
Original Assessment
An Original Assessment is the deemed assessment computed and submitted by a taxpayer for a particular year of assessment.
Best Judgment Assessment
A Best Judgment Assessment is issued when a taxpayer fails to furnish an income tax return or where the IRB is unable to ascertain the taxpayer’s actual income due to insufficient information or non-compliance. Such assessment may not necessarily reflect the taxpayer’s actual income and can often result in higher tax liabilities.
Additional Assessment
An Additional Assessment is issued when the IRB subsequently discovers that the tax originally assessed or deemed assessed is insufficient. This commonly occurs following a tax audit or investigation where the IRB identifies undeclared income, incorrect tax treatment of transactions, excessive claims for deductions or reliefs or computational errors in the tax return.
Prior to the issuance of an Additional Assessment, the IRB will always provide a computation of the additional tax liability, allowing the taxpayer an opportunity to respond and exercise the right to be heard. Additional Assessment may also be accompanied by penalties, where applicable.
Advance Assessment
An Advance Assessment allows the IRB to assess tax before it would ordinarily become due. This provision is typically invoked when the IRB has reason to believe that a taxpayer may leave Malaysia, dispose of assets or otherwise take steps that could prejudice the collection of tax.
Advance Assessments are intended to safeguard the government’s ability to collect taxes that may become payable.
Reduced Assessment
A Reduced Assessment is issued when the IRB is satisfied that an existing assessment should be reduced. This may arise where, errors have been identified, tax computations are revised, taxpayers successfully object to an assessment or where there is an overstatement of original tax liability.
A common example is where there is a need to retrospectively reduce the tax liability due to the fact that the gazette orders relating to tax incentives are issued well after the effective date.
Composite Assessment
A Composite Assessment is issued generally for cases settled by the investigation section of the IRB where both parties come to an agreement on the final settlement. This is unique in the sense that both the IRB and the taxpayer will come to an agreement that the settlement is final and both parties will not appeal against the assessment.
Protective Assessment
A Protective Assessment is generally raised to preserve the IRB’s position where there is uncertainty regarding the taxpayer’s liability or where the statutory time limits are approaching.
For example, a Protective Assessment may be issued while certain facts or legal issues remain under dispute. This ensures that the IRB’s right to assess tax is not lost should the matter subsequently be resolved in its favour.
Points to note
Once an assessment is issued, it is extremely important that you settle the tax within the 30 days time limit. Failure to do so will result in late payment penalties.
However, if you are in financial difficulties and truly are unable to settle the taxes in one go, the IRB has been very accommodating in listening to taxpayers about their problems and tailoring an instalment plan to settle the outstanding tax liabilities. Usually, seeking an instalment plan for six or 12 months is not uncommon.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).
