TaxPlanning: Tax measures announced during the MCO

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on May 25, 2020 - May 31, 2020.
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In this column in the first week of March, I talked about preparing one’s annual tax return for income derived in 2019. But on March 18, Malaysia was placed under the Movement Control Order (MCO). The restrictions, though somewhat eased, have been extended to June 9.

Things have changed since our last column. In response to the impact of the MCO on commercial life, the Inland Revenue Board (IRB) has introduced several measures with regard to various compliance deadlines and tax payments. 

The past several weeks have witnessed successive developments, amendments and changes to these tax compliance matters. This article is a compilation of all these, as at the time of writing (May 18), to create awareness of the available deferments. For the full details, kindly refer to the IRB’s Operational Guidelines 2/2020 ( guidelines). 

Filing of employers’ returns

Each employer is supposed to furnish an employer’s return (Borang E), which details the remuneration paid to employees during calendar year 2019, by March 31, 2020. A grace period of two months has been accorded, so the deadline has been moved to May 31 (see Table 1).

Payment of tax instalments

By individuals

Individuals who receive income other than from employment normally pay their income tax under an instalment scheme (CP500) made up of six bi-monthly payments estimated by the IRB, starting from March each year.

This year, the IRB has suspended the instalments due in March and May. The individual will pay the tax instalments due from July 2020 to January 2021. When the final tax liability for the year of assessment (YA) 2020 is determined in June 2021, any balance of tax will be due and payable by June 30, 2021 (see Example 2 for illustration).

By companies

Companies are required to pay 12 tax instalments based on a tax estimate (CP204). In response to the MCO, the IRB has similarly suspended the instalments due from small and medium enterprises (SMEs) for three months (April, May and June). For all tourism-related companies, the deferment applies to six instalments. For other companies, the tax payments due in April and May are deferred.

Any balance of tax is payable when the final tax liability for the year of assessment is determined (see Table 2).

Estimate of tax for YA2021

Companies are required to furnish an estimate of tax one month before the start of the basis period. The deadline for CP204 — which was to be due by March 31, or during the MCO period — has been extended to May 31. 

Early revision of tax estimate

The law provides for the revision of the tax estimate by a company in the sixth and/or ninth month. The IRB has now allowed for an earlier revision in the month of the third instalment, as long as it falls during calendar year 2020. The application for this early revision must be submitted during the month of the third instalment. All companies qualify for this early revision. Note that the approval is automatic and immediate as seen in Example 1.

Example 1

ABC Sdn Bhd has estimated its tax for the year ended Dec 31, 2020, to be RM12,000. The CP204 form was submitted on Nov 30, 2019. Twelve instalments of RM1,000 each are payable from Feb 15, 2020  until Jan 15, 2021.

The impact of Covid-19 is such that the company now estimates its tax liability to be RM7,500. Therefore, it is now able to revise its estimate in the month of the third instalment (April) without having to wait until the sixth or ninth month.

The revised instalment scheme is as follows:

The approval will be automatic and the revised tax instalment will apply immediately to the instalment due in April 2020. 

Assuming that ABC Sdn Bhd is an SME, it qualifies for the deferment of the three instalments due in April, May and June. Thus, it will only pay the remaining seven tax instalments at RM550 each. 

Assuming that the final tax liability of ABC Sdn Bhd for YA2020 is RM9,000, the tax position will be as follows:

There is no excessive difference, therefore there is no 10% penalty.

Submission of annual tax returns

The IRB has also granted a longer grace period for the submission of annual tax returns due in 2020 (see Table 3). Note that companies with accounting year-end in September to December 2019 have a three-month grace period.  Do take note that the extended grace period applies to both the submission deadline and the payment of the balance of tax. 

Example 2

Encik Ahmad, a resident individual with business income, has paid six tax instalments (CP500) for 2019 amounting to RM9,000. For his YA2020 tax, the IRB has estimated RM9,600 (RM1,600 for each instalment in March, May, July, September, November 2020 and January 2021). 

Ahmad did not pay the March 2020 instalment because the IRB deferred it. Similarly, he will not pay the May 2020 instalment. He is grateful for the deferment because it helps with his cash flow during the MCO. He expects to pay the remaining  instalments in July, September, November and January, which add up to RM6,400 (RM1,600 x 4).

Ahmad expects his tax liability for YA2019 and YA2020  to be both at RM12,000. He is mindful that he has to file his tax return for YA2019 as well as pay up the balance of tax of RM3,000 (RM12,000 - RM9,000) by Aug 31 (instead of June 30). 

In respect of his income in 2020, Ahmad will file his tax return by June 30, 2021, and he realises that he will have to settle the balance of tax of RM5,600 (RM12,000 - RM6,400) by June 30, 2021, as well.

Yong Siew Chuen has wide experience in Malaysian taxation. She now focuses on tax training and coaching. Comments: [email protected]