WTIH any self-assessment system, the responsibility to file the correct tax return to pay the correct taxes is passed on to the taxpayer. Any failure to do so will result in tax adjustments and accompanying penalties.
A self-assessment system is much more onerous on the taxpayer because the burden of understanding tax laws and complying with regulations now lies totally with the taxpayer. Ignorance of the law cannot be used as an excuse, and it is expected that either the taxpayer understands the law, rules and regulations, or obtains the necessary advice to guard against any misreporting.
Self-assessment started in Malaysia in the early 2000s, beginning with corporates and continuing in 2024 for the Capital Gains Tax. In 2025, this will be extended to Real Property Gains Tax (RPGT).
The Inland Revenue Board (IRB) has done a good job so far in supporting the self-assessment system by providing guidance to taxpayers and tax advisers on how the various laws should be interpreted. This has been done through public rulings, guidelines, practice notes, etc.
Problems
Despite the IRB giving its views on how the laws should be interpreted, a taxpayer may not necessarily agree with the positions taken by the board. The taxpayer would look at the law and pay only the minimum amount of tax that is required to be paid under the legislation. The IRB may take a different position to collect the tax. Both parties may have merits to support their respective positions, but since the IRB has the power to issue the assessment, the winner in such battles is the IRB and this can only be resolved after paying the taxes and taking the matter to court.
With the introduction of the self-assessment system for RPGT filings, we anticipate many battles, and the biggest one will be whether the transaction will be subjected to RPGT or income tax. It is very common for taxpayers to argue that their property is of an investment nature, which should be taxed as a capital gain rather than income tax, while the IRB has a tendency to argue otherwise and bring it to income tax. The dispute is based on what are the characteristics of the transaction and, in technical terms, it comes under what we call “badges of trade”.
The other common problem that will arise is when you are dealing with Real Property Company (RPC) shares. Although the legislation around RPC shares is contained in a single Paragraph 34A, the treatment of this issue is very complex, and the disputes that will arise in an e-filing will increase since the interpretation of the law by the IRB and taxpayers will be very different, and an example will be the treatment of bonus shares, rights issues, the determination of an RPC, and the related complexities around this legislation.
Similar problems will also arise in determining the acquisition costs and disposal values. This is a complex piece of legislation that deals with exchanges of properties, how trustees and executors should be dealing with the properties, issues around leases, contingent liabilities and options, etc.
How to avoid the problems
When taxpayers prepare their RPGT returns, they need to exercise extreme vigilance in filling in the right information and understanding the law. Since taxpayers do not file these returns on an annual or regular basis, it is advisable for taxpayers to appoint professionals to file their RPGT returns.
In the event a taxpayer takes a position that is challenged by the tax authorities, the taxpayer must be prepared with the necessary evidence that will dovetail with the supporting law.
We anticipate a significant increase in the number of challenges from the IRB with the introduction of the self-assessment system for RPGT.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).
