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Self-assessment system (SAS) is the assessment procedure manner where the taxpayer personally compute his own income tax. In this system, the taxpayer has to personally prepared and assess their income tax based on the tax laws, guidelines and regulations issued by the Inland Revenue Board of Malaysia (IRB). The responsibility of the validity and accuracy of the income tax payable reports falls on the taxpayer himself as the self-assessment procedure will assume that the information submitted is accurate and will not be inspected by the IRB. (Kasipillai, 1999).
This system was submitted in the 1999 national budget presentation. Initially, the Self- Assessment System (SAS) which was introduced gradually from year of assessment 2001 companies. The full implementation for partnerships, sole proprietors and corporations was in 2003, and the subsequent year of 2004 was for individual income taxpayers. Through this system, the taxpayers are given the role of assessing themselves. This creates. It creates assurance to taxpayers as the ascertainment of tax liability falls on the taxpayer and not on the tax administration’s judgment.
Responsibilities of Taxpayer
According to Sakaya (2004), taxpayers ought to take the initiative to be proficient of the new tax regime as well as the tax legislation relating with their individual taxation. In the event that the taxpayer has knowledge on individual taxation, he could stay away from mistakes that can be both unreasonable and also unpleasant to the taxpayer. Moreover, knowledge of the essential tax treatment of the employment income and the taxpayers’ qualification for the different personal relief and deductions will help minimize the tax liability. Individual taxpayers with more complicated tax issues and more compliance consistence necessities, for example, salaried person who has rental and other non-employment wage may look for the assistance of the duty experts to register the tax liability and document the tax return. In any case, the ultimate ownership and obligation in reporting still lies with the citizen in the era of self-assessment system.
The IRB has outlined the responsibilities of a taxpayer as presented below:
- To inform the IRB in regards to the taxpayer liability to tax.
- To declare actual income got from all sources.
- To outfit all data asked.
- To acquire return from latest by 14 April consistently, if the taxpayer has not got one.
- To finish and present the Return form by 30th April.
- To compute the tax liability based on the tax laws and procedures.
- To keep records or documents relating to wage and expenditure for a period of 7 years after submission of the Return form.
- To inform the IRB in regards to any change of address within 3 months.
- To pay taxes due when presenting the tax return form.
To intensify tax compliance in the self-assessment regime, an alternate technique taken by IRB is the presentation of tax audit and examination. In tax audit, taxpayers are required to hold all the important reports and receipts relating pertaining to the computation for no less than seven years. Since submission of documentary proofs to the IRB is no more needed under the SAS, the onus now lies with the taxpayer to produce documentary evidence to substantiate tax deductions made in the tax returns in the occasion of a review. In like manner, the taxpayers are asked to figure their own tax liabilities with truthful disclosure. Likewise, in the occasion a taxpayer disputes the tax liability assessed such under declaration of the income that the individual earned in a year of evaluation, the onus of evidence lies on the taxpayer all through the audit process.
Penalty if taxpayer fails to comply under self-assessment system.
On the off chance that individual taxpayer failed to submit tax return form, the IRBM will obtain their own evaluation based on the approximation and issue notice of assessment. Non submission of tax return form and late installment of taxes will attract monetary penalty; and for repeated offenses, imprisonment will be forced by the Court. The penalty on inability to outfit tax return by the stipulated due date is a fine ranging from RM200 to RM2,000 or imprisonment not surpassing 6 months or both fine and imprisonment. Individual taxpayers who fail to make income tax payments for a year of assessment inside 30 days from the date of issue of the notice of evaluation or regarded assessment are charged a 10% increment on the tax or outstanding tax balance. If the tax or tax balance is still unpaid, following 60 days from the date the 10% increase is forced, a further 5% increment will be charged on the tax outstanding.
In perspective to further intensify willful tax compliance, the IRBM instituted tax audit and examination system. In January 2007, the tax audit framework and tax examination framework were distributed to serve as a manual to taxpayers, tax operators and IRBM tax auditors. The probability of individual taxpayer being chosen to tax audit is once in every five years. Any inconsistencies from the audit findings will be classified as incorrect return. Penalties going from 100% to 300% and/or imprisonment up to 3 years will be imposed on tax defaulters.
Our opinion why government implements the self-assessment system.
In our opinion, the traditional approach to processing income tax returns where the IBR officer will inspect each and every return to check for technical and arithmetical accuracy was ineffective and inefficient method of ensuring compliance with tax law (Singh and Renuka, 2002). Hence, in the year of 2011, the self-assessment system was implemented in Malaysia.
One of the reasons the government implement the self-assessment system is to modernize and streamline the tax administration. This is because the previous system is seen as too old fashion and complicated as too many procedures and steps are needed to scrutinize each and every income tax payable form. Through this system, the complicated processes leading to the payment of tax after the submission of returns are significantly reduced and a more efficient system and faster collection of taxes could be implemented and facilitate the collections of the taxes and the assessment process could be sped up.
Besides that, the SAS requires the taxpayer to personally calculate their personal income tax. Hence, the taxpayer is directly involved in the tax computation which will lead to better financial planning. Following that, the taxpayers will be able to acquire a further understanding and appreciation of tax computations as a basic knowledge of taxation is required of them.
As the self-assessment System requires the taxpayers to compute their tax liabilities and submit their tax returns based on existing tax legislations, it is presumed that taxpayers possess the necessary knowledge and skills to comply with the tax laws. Hence, the quality control of taxpayers’ tax affairs will significantly improve as they ensure that their assessments are up to date as well as reflect the true tax position. Therefore, the awareness of the taxpayer towards their tax payable would also be significantly increased and the SAS could increase the level of income tax compliance.
Lastly, the costs of compliance in respect of submission of income tax returns will be significantly reduced. This is because the responsibility of the computation of tax falls in the hands of the taxpayer themselves, hence IRB is able to reduce the cost such as the administration and complicated procedures costs, and the reduction of the workforce required to assess the tax assessment.