Malaysian Public Taxes
Malaysia has introduced advance rulings started from 1st January 2007 in by the Malaysian Inland revenue Board. Here, we will discuss the similarity and differences of advance ruling and public ruling.
Question 1
1.1 Differences
1.1.1 Interpretation and Purpose
Basically, advance rulings are binding statements from tax authorities concerning the treatment and consequences of series of contemplated future actions or transactions.
On the other hand, public rulings are a written document by tax authorities on how the revenue interprets in the tax law applies to taxpayer. It sets out the interpretation of the Director General of Inland Revenue (DGIR) in respect of particular tax law that will be applied to broadly described situations.
1.1.2 Context
Section 138B of the Income Tax Act 1967 (ITA) allows a person to request for an advance ruling from the DGIR by using a prescribed form. Also, Para 154(1)(eb) empowers the Minister of Finance to provide scope and procedures in relation to the advance ruling and prescribe the fees to be imposed.
In contrast, public ruling is provided for under Section 138A to provide guidance for the public and IRB officers.
1.1.3 Charges and Way of Acquisitions
An advance ruling is initiated by taxpayer by furnishing Form KA and taxpayer has to go through processes in order to get the advance ruling issued. Application fee of RM500 and consultation fee of RM150 per hour will be charged to applicants.
Yet, public ruling is applicable to any taxpayer without any charges. Besides, an updated public ruling can be found on newspapers, so as downloadable thru IRB website.
1.1.4 Result and Effect of Binding
An advance ruling result is final, which means that no further correspondent can be made. However, taxpayer have a choice of not to incur transactions stated as it is strictly not a legislation. If taxpayer chooses to incur the transactions, it has to bind to the said advance ruling on period of assessment which it relates.
However, a public ruling may be withdrawn wholly or partly, by notice of withdrawal or publication of new ruling which consistent with it. On other words, public rulings will be binding forever until it withdraws.
1.2. Similarities
1.2.1 Legislation
Both advance ruling and public ruling are not legislation as it’s merely an interpretation of IRB on the ITA.
1.2.2 Appeal
Both rulings can be appealed if taxpayer is not satisfied with it. Objections to tax treatment stated in the advance ruling can be appealed, after the tax form had been returned, under the normal appeal provision of Section 99, which is against the notice of assessment raised.
1.2.3 Objectives
Both rulings are implemented to ensure clarity and certainty of tax treatment. This will help to promote compliance and minimize disputes between IRB and taxpayers.
Question 2
Since the advance ruling system has implemented, MIRB has encountered to some challenges.
2.1 Responsibilities and Resources
IRB has entitled to additional responsibilities. Furthermore, IRB might not have sufficient time and resources to accomplish a perfect advance ruling. As the ITA is not as comprehensive as other countries, some matters might be left out. Consequently, IRB officers have to do extra research which does not parallel with the fees collected.
2.2 Unfavorable result
In taxpayers’ point of view, the result of the advance ruling is concerned. If the result is unfavorable, taxpayer will have to opt whether or not to comply it as the result cannot be corresponded.
2.3 Timing
Besides, it takes a long time to get an issued advance ruling. It will be favorable to get consultation from tax agents. Although IRB promised to give advance ruling within 60 days from the date a complete application is submitted, it’s hard for taxpayer to predict how long IRB will take to collect all related information. As a result, transactions might be varied due to uncontrollable issues thus the issued advance ruling might not be applicable.
2.4 Confidentiality
Furthermore, abuse usage of confidential information might be a challenge face by taxpayer and IRB. Although IRB pledged that an advance ruling will be treated as confidential, however officers might privately use the related information. For example, if the transaction will affect taxpayer’s share price broadly, IRB officers are tend to buy the shares in advance.
2.5 Waste of Resources
In addition, advance ruling will only apply on specific transaction to taxpayer who applied. If the taxpayer has changed some matters of the said transaction, the prior advance ruling will not be applied. This will cause a waste of various resources.
2.6 Decline of business
Corporate taxpayer like tax firm is facing a challenge of declining of business. As an advance ruling is issued by tax authorities and consultation fee is generally affordable, clients will tend to seek advice from IRB which is more convincing.
Question 3
To minimize the problems and challenges, appropriate ways should be taken.
3.1 Consider wisely
In order to minimize problems face by taxpayers, taxpayers are suggested to think wisely before submitting Form KA. A proposed arrangement is treated by IRB as seriously contemplated. Hence, the result of an issued of advance ruling needed be considered as well.
3.2 Hire Expertise and Rates
Whereas for IRB, insufficient of various resources will result to chaos. To resolve this, IRB could hire more experts in tax field. Nevertheless, money now will be another issue. IRB could actually increase the consultation rates as the current consultation rate is comparably low with the tax firms. This will increase the efficiency and income for IRB.
3.3 Image
Besides, IRB are suggested to compete themselves with tax firms. For decades IRB was labeled of inefficient working speed. Thus, IRB has to recover their image of clean and efficient to public. Incidentally, the period of getting an issued advance ruling will be shorter and thus, taxpayers will feel more confident towards IRB.
Reference
Eow Siew Lee (2006), ‘Advance Rulings – What to Expect’, Tax Nasional ,4th Quarter 2006, pp 12-14.
Peggy Then, Director of KPMG Tax Service Sdn Bhd, explained in a talk on 25 July 2008 on ‘Single-tier System and Advance Ruling’.
Rulings Division, Technical department, Inland Revenue Board Malaysia (2008) , Guidelines on advance Rulings.
Tuan Haji Abdul Hamid bin Mohd Hassan and Dr. Jeyapalan Kasipillai, ‘Advance Tax Ruling in the Context of Self Assessment’, Tax Nasional, 3rd Quarter 2005, pp 22-25.
We provide a professional essay writing service that thousands of our customers use as an effective way of improving their grades, improving their research and saving them lots of time.
