The Malaysian government is going ahead with its tourism tax to be imposed from July 1, 2017. Under the new tax, hotel guests will be charged between RM2.50 and RM20 for every night’s stay, depending on the classification of the hotel.
According to Malaysian Tourism and Culture Minister Mohamed Nazri Abdul Aziz the money collected would be used to promote Malaysia overseas and refurbish tourism facilities. The Tourism Tax Bill 2017 was passed in the last Parliament sitting with a majority vote.
The Inland Revenue Board of Malaysia (IRBM) issued an amended tax audit framework on 1 May 2017. The aim the amended framework is to ensure that tax audits are carried out in a fair, transparent and impartial manner. The framework outlines the rights and responsibilities of audit officers, taxpayers and tax agents in respect of a tax audit. In addition, the aims of the framework include assisting audit officers to carry out their tasks efficiently and effectively, and assisting taxpayers in fulfilling their obligations.
Generally, a tax audit covers a period of one year of assessment, determined in accordance with the audit focus criteria of the department. However, the tax audit may be extended to cover a period up to five years of assessment, pursuant to the issues uncovered during an audit. This five year time limit is not applicable to cases involving fraud and tax evasion whether intentional or unintentional.
If it is discovered following an audit that there has been an understatement or omission of income, a penalty will be imposed under subsection 113(2) or paragraph 44B(7)(b) of the ITA under which the penalty rate is equal to the amount of tax undercharged.
Where a taxpayer, after submitting a return and being assessed to tax, makes a voluntary disclosure after the due date but not later than 6 months from the due date, the penalty rates are ranging from 10% to 15.5% depending on the amount of time passing before the voluntary disclosure is made.
The concessionary penalty rates for voluntary disclosure other than cases mentioned above range from 20% to 35% depending on the period from the due date of submitting the tax return form.
The amended framework is effective from 1 May 2017 and replaces the tax audit framework dated 1 February 2015.
The Malaysian Inland Revenue Board (MIRB) published a media statement on 16 May 2017 regarding clarification of imposing 100% penalty for failure to declare income and correct information which will be implemented with effect from 1 January 2018.
Under the Income Tax Act 1967, the Director General of Inland Revenue is given the power to impose a penalty for the offence of default in declaring income or in declaring correct income which is subject to tax. The proposal to increase the rate of penalty to 100% of the tax payable on the undeclared or under declared income beginning 1 January 2018 is a step towards elevating the level of voluntary compliance among tax payers by dealing with tax payers who are hardcore tax law defaulters.
Examples of cases that would be subject to the 100% penalty are repeated offences of undeclared or incorrectly declared income received by way of a return form; refusal to give full co-operation during an audit or investigation process; failure to give information or documents requested to assist in an audit or investigation process; carrying out an organised tax evasion scheme or failure to comply with the tax law even though the tax payer has been audited or investigated before.
In preparation, tax payers are encouraged to come forward and declare their income and correct information within the required time.
The government released an Exemption Order (the Order) on 10 April 2017 providing a temporarily reduction in corporate income tax rates based on incremental taxable income compared to the preceding year of assessment. The “Income Tax (Exemption) (No. 2) Order 2017” has effect for the year of assessment 2017 and year of assessment 2018.
The order applies to a qualifying person whose business has been in operation for not less than twenty four months. Also applies to a qualifying person who has chargeable income from a source consisting of a business in the basis period for a year of assessment and the year of assessment immediately preceding that year of assessment and has made up its account for a period of twelve months ending on the same date for each of those years of assessment.
The Order will not apply in certain cases including a company claiming the reinvestment allowance tax incentive, incentives under the Promotion of Investments Act 1986, or a group relief.
The reduction in the corporate income tax rates would apply as follows:
Percentage of increase in taxable income from previous YAs
Percentage point in tax rate reduction (%)
Tax rate on incremental taxable income (%)
5% – 9.99%
10% – 14.99%
15% – 19.99%
The Inland Revenue Board of Malaysia (IRBM) has recently announced that mandatory e-filing is required for companies which furnish their estimated tax payable (Form CP204) and Revised Estimation (Form CP204A) for the year of assessment 2018 and onwards. The required provision is under the provision of subsection 107C(1A) of the Income Tax Act 1967 (ITA 1967). Therefore, CP204 and CP204A submitted manually (paper form) by companies will be deemed not received for such purposes under subsection 107C (1A) ITA 1967.
A company shall furnish CP204 to IRBM not less than 30 days before the beginning of a basis period for the year of assessment. Failure to comply with the aforementioned provisions is an offence under subsection 120(1)(f), of the same Act. Upon conviction, companies may be liable to a fine of RM 200.00 to RM 2,000.00 or imprisonment (not more than 6 months) or both.
The Inland Revenue Board of Malaysia issued the income tax (Country-by-Country Reporting) rules (“CbCR Rules”) on 23 December 2016 which came into effect on 1 January 2017. The CbC rules apply to Malaysian-parented multinational corporate groups with total consolidated group revenue of at least Malaysian Ringgit (RM) 3 billion in the financial year preceding the reporting financial year. The MNC group carries out cross- border transactions with constituent entities owned or controlled by the MNC group in other tax jurisdictions.
Each Malaysian resident entity of the MNE group that is subject to the CbC reporting requirement must notify the Director General, in writing, of who is the MNE group’s reporting entity on or before the last day of the reporting financial year. For example a MNC group which has a financial year ending 31 December 2017, will be required to file the CbCR no later than 31 December 2018. A MNC group with a financial year ending in March (i.e. 1 April 2017 to 31 March 2018) will be required to file the CbCR no later than 31 March 2019. The CbCR must be filed no later than 12 months after the end of the financial year.
The CbC report must include information on a country-by-country basis relating to the multinational group including information about income, taxes paid, employees, and the nature of business activity.