> Current Year Assessment
:: Part A :"Preparing For The Changeover". Questions And Answers- Compiled By Inland Revenue Board
:: Part B :"Current Year Assessment". Questions And Answers - Compiled By Ministry of Finance Malaysia & Inland Revenue Board
> Assessment of Tax
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> Form B
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> Form M

Q1	:	What will happen in the year 2000?
A1	:	In the year 2000, there will be a change in the basis of assessment from the preceding year basis to the current year basis. The Income Tax Act 1967 will have to be amended to facilitate the change. The year of assessment 2000 will be in respect of :- (a) the basis period ending in the year 1999 (preceding year basis); or (b) the basis period ending in the year 2000 (current year basis). The year of assessment following the year of assessment 2000 on preceding year basis shall be the year of assessment 2000 on current year basis.
Q2	:	In the year 2000 will I be liable to tax on my income earned in 1999?
A2	:	You are liable to tax on your income earned in 1999 for the Year of Assessment 2000 on a preceding year basis but as a result of the waiver, you would not have to pay any tax on the 1999 income.
Q3	:	Will Return Forms be issued for Year of Assessment 2000 (Preceding Year)?
A3	:	The Return Form for Year of Assessment 2000 will be issued as usual at the beginning of year 2000 (February). Taxpayer will be required to complete and submit Return Form for the Year of Assessment 2000 declaring the income arising from the year 1999. Tax that would have been chargeable will be waived .
Q4	:	When will the Return Form to declare the income for year 2000 be issued?
A4	:	The Return Form for the Year of Assessment 2000 requiring taxpayer to declare his income for the year 2000 will be issued at the beginning of the year 2001.
Q5	:	If my tax for Year of Assessment 2000 on income earned in 1999 is waived, why do I need to file a return for the Year of Assessment 2000?
A5	:	The return is required by IRB to determine whether you are entitled to the waiver and if you have business income, to compute the capital allowances and losses (if any) due to you.
Q6	:	Will Notices of Assessment be issued?
A6	:	Notices of Assessment will be issued for taxable cases. For companies, tax computations will be issued for purposes of confirming the exempt account.
Q7	:	Will tax have to be computed for the Year of Assessment 2000?
A7	:	The Return Forms for the Year of Assessment 2000 submitted to IRB has to be accompanied by accounts and tax computation. Capital allowances will be allowed in arriving at the statutory income of the company, whether or not claimed. Tax liability will be determined and any tax payable will be waived from tax.
Q8	:	What income are not included in the waiver?
A8	:	The waiver of tax for Year of Assessment 2000 is not given across the board to all income arising from 1999. The following income and categories of taxpayer are subject to tax :- a. Dividend b. Income which is subject to final withholding tax (interest, royalties, technical fees). c. Non-citizens and non-resident individuals who commenced or ceased employment in 1999.
Q9	:	How would dividend income be taxed?
A9	:	Dividend income will be subject to tax in the Year of Assessment 2000. The tax on dividend can be worked out as follows :- Example (1) In 1999, Mr. Tan receives dividend income only. His dividend income will be subject to tax for Year of Assessment 2000. His tax is computed as follows:-

	RM
Gross Dividend (tax deducted at source: RM8,960.00)	32,000
Less: Approved Donations	200 _____
	31,800
Less: Personal Relief	15,000 _____
	16,800 =====
Tax on First 10,000	250
Tax on balance @ 6%	408 _____
	658
Less: Tax deducted at source	8,960 _____
Tax Repayable	8,302 =====

	(A)	(B)
	(With Dividend)	(Without Dividend)
	RM	RM
Gross Dividend (tax deducted at source RM8,960.00)	32,000	-
Rental	120,000	120,000
Total	152,000	120,000
Less: Approved Donations	200 ______	200 ______
	151,800	119,800
Less: Personal Relief	15,000 ______	15,000 ______
Chargeable Income	136,800	104,800
Tax First 100,000	16,750	16,750
Tax on balance @ 29%	10,672 ______	1,392 ______
Tax Payable	27,422 ======	18,142 ======
Therefore Tax on Dividend (A)-(B) (27,422 - 18,142) =		RM 9,280
Less: Tax deducted at source		8,960
Tax Payable		320 ====

Q10	:	What happens to dividend received as part of business income?
A10	:	Dividends of such nature is still subject to tax for Year of Assessment 2000 and Section 110 credit (tax deducted at source ) will be set-off accordingly. Example (1) ABC Sdn. Bhd. is an investment dealing company. Dividends are assessed as part of the business income. Tax on business and interest income is waived. The computation of tax on dividend income for Year of Assessment 2000 is as follows:- Year of Assessment 2000 (preceding year)

	(A)	(B)
	(With Dividend)	(Without Dividend)
	RM	RM
Business (Statutory Income)	100,000	100,000
Dividend	60,000	-
Interest	40,000 ______	40,000 ______
Total	200,000	140,000
Tax @ 28%	56,000 =====	39,200 =====
Therefore Tax On Dividend (A)-(B) (56,000 - 39,200) =		RM 16,800
		16,800
Tax Payable		NIL =====

	(A)	(B)
		With Dividend	Without Dividend
		RM	RM
Business (Statutory Income)		20,000	20,000
Dividend	75,000
Less: Interest expense	25,000	50,000
Rental		40,000	40,000
Total		110,000 ======	60,000 ======
Tax @28%		30,800	16,800
Therefore Tax on Dividend (A)-(B) (30,800 - 16,800) =			RM 14,000
Less: Tax deducted at source			21,000
Tax Repayable			7,000 =====

Q11	:	When would a non-citizen or non-resident individual be taxed on his employment income?
A11	:	A non-citizen or non-resident individual will be subject to tax for the Year of Assessment 2000 (preceding year) if he commences or ceases his employment in 1999. The tax on such income can be worked out as follows:- Example (1) Mr. Olivier Laurent is a Canadian citizen and has been working in Malaysia since 1992. He ceases employment in June 1999 and his salary for the period 1.1.1999 to 30.6.1999 is RM76,000. His tax for the Year of Assessment 2000 is computed as follows:-

	RM	RM
Employment income		76,000
Less: Personal Relief
Individual	5,000
Wife	3,000
Child	1,600
Insurance / EPF	5,000	14,600
Chargeable Income		61,400 =====
Tax on First 50,000		4,750
Tax on balance @ 21%		2,394
Tax Payable		7,144 ====

Q12	:	How will companies that change their financial year be affected in the waiver year?
A12	:	The basis period for a Year of Assessment 2000 considered for the waiver will follow that of the financial year of the company. Any company making up accounts of more than 12 months will however be only given a waiver of tax for profits up to 12 months only. The balance will be taxed. Example PQR Bhd. makes up its account for the following periods:- 1.7.1997 - 30.6.1998 (12 months) 1.7.1998 - 31.12.1999 (18 months) 1.1.2000 - 31.12.2000 (12 months) The waiver of tax on profits of company PQR is as follows:-

Q13	:	What happens if a company commences business in 1999 and closes its first accounts in year 2000?
A13	:	For example, if a company commences business on 1.7.1999 and makes up its first accounts of 12 months to 30.6.2000, such a company would not be entitled to the waiver.
Q14	:	What happens to business losses and unabsorbed capital allowance brought forward to Year of Assessment 2000 (preceding year)?
A14	:	Based on the Return Forms and accounts submitted for the Year of Assessment 2000 (preceding year) the company's tax will be computed as usual, where unabsorbed business losses and capital allowances brought forward would be allowed. Any tax payable will then be waived. However, if the results are that there are losses to be carried forward, such losses and capital allowances would be carried forward to the Year of Assessment 2000 (current year).
Q15	:	Will dividends distributed out of income where tax has been waived be exempt from tax in the hands of the shareholders?
A15	:	An amount equal to the chargeable income upon which tax is waived shall be credited to an exempt account to be kept by the company for distribution of exempt dividends. If the shareholder is a company then any dividend paid out of such exempt dividend income will also be exempt in the hands of the shareholders.
Q16	:	Will dividends distributed from an exempt account in respect of income where tax has been waived, be subject to tax if such dividends are paid in 1999?
A16	:	Any dividend distributed from the exempt account will not be subject to tax for the year of assessment 2000 (preceding year). For example, DEF Bhd's accounting period is 30 June. Tax on income arising in basis period ending 30.6.1999 for Year of Assessment 2000 is waived and the company makes a dividend distribution out of the exempt account on 30.10.1999. Such dividend distribution would also be tax exempt in the hands of the shareholders for the Year of Assessment 2000 (preceding year).

Q1	:	What is meant by "current year assessment system"?
A1	:	Under the current year assessment system, income derived in the current year will be assessed and liable to tax in the same year. In the 1999 Budget, it is proposed that the current year assessment system be implemented with effect from the years 2000. With this change, it would mean that income derived in the year 2000 will be assessed to tax in the same year.
Q2	:	What is the difference between "current year assessment" and "preceding year assessment"?
A2	:	The difference between "current year assessment" and "preceding year assessment" is as follows: "Current year assessment" means income derived in a current year will be assessed and liable to tax in the same year. "Preceding year assessment" means income tax charged for a particular year is based on income that has been derived in the preceding year. We are presently under the "preceding year assessment" system. As such, income derived in 1998 will be assessable in the year 1999 (year of assessment 1999).
Q3	:	What are the benefits under the "current year assessment system"?
A3	:	The benefit arising from a current year assessment system is that tax will be assessed and collected on income derived in the same year. As such, the tax will be collected based on the ability (to pay) and the current cash flow position of the taxpayer. However , under the preceding year assessment basis, tax is collected about a year after the income arises and this has resulted in cash flow problems to the taxpayers in the following year when they have to settle their taxes, particularly in time of recession or economic downturn.
Q4	:	How does Lembaga Hasil Dalam Negeri (IRB) collect taxes from taxpayers?
A4	:	The method of payment of income tax is determined following the categories of taxpayers. Taxpayers can generally be categorised into: (i) Employees (individuals only); (ii) Business (individuals and companies); and (iii) Others including co-operatives, associations, Trusts and deceased estates. Employees This category of taxpayers are subject to the Schedular Tax Deduction (STD). Under the STD, tax is deducted by the employer from the salaries of the employees based on a schedule as provided by IRB. Business The business group comprises individuals (sole proprietors and partners) and companies. This category of taxpayers is subject to the instalment payment scheme. Under the present arrangement, taxpayers are allowed five (5) bimonthly instalments (January, March, May, July and September or February, April, June, August and October). Others Same as the business group as mentioned above.
Q5	:	What is meant by the "Schedular Tax Deduction" (STD)?
A5	:	The Schedular Tax Deduction (STD) is a collection scheme whereby it is obligatory for each employer to deduct from the salary of each of his employee following a schedule as determined by IRB for payment of income tax of the employees. Presently, there are 3 categories of employees who are subject to STD: (i) Employees who commenced employment before 1 January 1995; (ii) Employees who commenced employment after 1 January 1995; and (iii) Employees in Sabah and Sarawak. Category (i) For employees commencing employment prior to 1 January 1995, tax deduction is in respect of income derived from the preceding year. Category (ii) and (iii) For employees commencing employment after 1 January 1995 and employees in Sabah and Sarawak, tax deduction is for the income derived in the current year.
Q6	:	What are the implications on taxpayers arising from the implementation of the current year assessment system in year 2000?
A6	:	With the implementation of the "current year assessment" system in year 2000, taxpayers will have to pay tax in year 2000 based on the income derived in the year 2000. However, as the assessment in year 1999 is still based on the preceding year basis, income for 1999 will be assessable to tax in year 2000 and payment of tax has to be made in that year too. This means that the taxpayer would have to pay income tax for 2 years in the year 2000.
Q7	:	How would the Government relieve the burden on the taxpayers having to pay tax for two years in one year as a result of the change to the current year assessment?
A7	:	To relieve the burden on taxpayers from payment of income tax for 2 years in one year , the Government proposed to waive income tax on the 1999 income. This means that in the year 2000, tax will not be charged on income for the basis period 1999. Tax that needs to be paid in year 2000 is based on income derived in the year 2000 only. Even though income for basis year 1999 is waived from income tax, taxpayers are required to declare their income for the said year in the Return Form for Year of Assessment 2000.
Q8	:	What are the types of income that are chargeable to tax?
A8	:	Income chargeable to tax following the provisions of the Income Tax Act, 1967 are as follows: (a) Employment income; (b) Business income; (c) Dividends, interest and discounts; (d) Rents, royalties and premiums; (e) Pension, annuities and other periodical payments; and (f) Other income not falling under any of the above. Under section 3 of the Income Tax Act 1967 , remittances received by residents, other than companies, from outside Malaysia are chargeable to tax.
Q9	:	What is meant by income for 1999 being waived from income tax?
A9	:	Income for 1999 which is to be waived from income tax is in respect of all income as stated under the answer for the question No. 8 above, derived from basis period 1999, except for dividend income. However, income derived by foreign employees and non-resident individuals who commence or terminate their employment in Malaysia in the year 1999 will be subject to tax. Income derived in the basis period 1999 means income arising and does not necessarily mean income received in the basis period 1999. Income received in the basis period 1999 but relates to employment or business transactions in the basis period 1998 or prior years will be subject to tax in the year the income a rises and will therefore not be waived from income tax. For example, compensation received in year 1999 for cessation of employment which took place in 1998 will be considered as income for 1998 and not as income for 1999.
Q10	:	What are the implications from the waiver of tax on taxpayers?
A10	:	The assessment and payment positions for each category of taxpayers resulting from the tax waiver on income derived from basis year 1999 are as follows:- (a) Employees Based on 3 categories of employees who are subject to STD: (i) Employees who commenced employment before 1 January 1995; (ii) Employees who commenced employment after 1 January 1995; (iii) Employees in Sabah and Sarawak. Category (i) For employees under this category , deductions under STD will continue in the year 1999 for payment of tax on 1998 income. Employees are required to declare their 1998 income in the Return Form for Year of Assessment 1999 which will be issued in the early part of 1999, to be assessed for the Year of Assessment 1999. They will not be taxed on income arising in the year 1999 in year 2000. Beginning from year 2000, they will pay tax based on current year income (year 2000). Category (ii) and (iii) For employees under these categories, they are exempted from deduction of tax under STD in the year 1999 because they have already paid tax on their 1998 income through STD in the year 1998. However, such employees are still required to declare their income for 1998 by submitting Return Form for Year of Assessment 1999 to determine their actual tax liability. STD will recommence in respect of these categories in the year 2000. (b) Business (c) Others (co-operative, associations, trusts, deceased estates) For categories (b) and (c) above, they will continue to pay income tax through the instalment scheme as arranged for in 1999 on the income for basis period 1998. They are required to declare income for basis period 1998 for the Year of Assessment 1999. These categories will continue to pay tax in year 2000 but on current year income. These groups of taxpayers will also not be assessed on income for basis period 1999 in the year 2000. However, they will be required to complete Return Form for Year of Assessment 2000 which will be issued in 2000, for declaration of business profits/losses for basis period 1999, to enable the claim for losses to be carried forward to be determined.
Q11	:	How is the tax treatment on non-residents as a result of the implementation of "current year assessment" system?
A11	:	Presently taxpayers who are non-residents are assessed as follows:- (i) Income Tax

		Non-resident taxpayers are also presently subject to assessment on a preceding year basis and payment of tax for 2 years in one year will also arise in year 2000. Generally the non-resident taxpayers are also waived from tax on income derived in year 1999. However, non-resident individuals who commence employment in 1999 will be assessed to tax on the 1999 income. In respect of withholding taxes, the payers in making payments to non-residents are required to withhold and remit to IRB, tax of the non-residents on specific income and at rates specified. The tax waiver on 1999 income will not be applicable to non-residents receiving income which is subject to withholding tax and considered as a final tax. On the other hand, withholding tax on the service portion of contract payments is provided as a collection mechanism to ensure compliance of the non-residents to submit Return Forms and to settle their tax liability which will only be determined in the following year. Thus, such withholding tax on the non-resident contractors are not final tax and the non-resident contractors will be given the waiver in respect of income derived in basis period 1999. However, withholding tax will still apply to ensure tax compliance of the non-resident contractors.
Q12	:	Will the implementation of the "current year assessment" system affect the Government's cash flow?
A12	:	The implementation of the "current year assessment" system will enable tax on income derived by the taxpayer in a particular year to be collected in the same year too. This means that the Government's cash flow will not be affected by the implementation of current year assessment system but the cash flow will reflect the current economic performance.
Q13	:	What are the categories of taxpayers which will not be granted the tax waiver on year 1999 income?
A13	:	The change from the "preceding year assessment" to "current year assessment" system involves the assessment system under the Income Tax Act 1967 and the waiver of tax on basis period 1999 income is given to avoid taxpayers having to pay two (2) years taxes in one year. The categories of taxpayers not given the waiver are as follows:- (i) foreign employees and non-resident individuals who commence or terminate their employment in year 1999; (ii) taxpayers subject to withholding tax where it is a final tax.
Q14	:	Is "current year assessment" system applicable for the Petroleum Income Tax Act 1967 ?
A14	:	Current year assessment system is not applicable to the Petroleum Income Tax Act 1967. This decision is taken in view of the need for the Government to maximise tax revenue from the upstream petroleum industry which is exploiting the most important natural resource of the country that would be depleted after a period of time. Furthermore, the income tax element has been taken into consideration in the profit sharing contracts of this industry.
Q15	:	What is the tax treatment on dividends with the implementation of the "current year assessment" system?
A15	:	With the implementation of the " current year assessment " system, any dividends distributed out of income from basis period 1999 will be exempted in the hands of the recipients (shareholders). For this purpose, companies are required to keep a separate account for income derived in the basis period 1999, which would be waived from the income tax.
Q16	:	What is the effect of the implementation of the "current year assessment" system on companies enjoying incentives under pioneer status?
A16	:	If the period of exemption under Pioneer Status overlaps with the basis period 1999 where the tax is being waived, the Government will not extend the relevant pioneer period.
Q17	:	How is the tax treatment of companies whose financial year is not the same as the calendar year ?
A17	:	This Ministry takes note that there are companies whose financial year is not the same as the calendar year. For these companies, the implementation of the current year assessment system beginning from the year 2000 will subject them to financial difficulty even though income derived for the basis period 1999 is waived from tax. This is because they are still subject to payment of two - year tax in one year. For example, for a company having a financial year from 1 February to 31 January would have to pay tax on income derived during the period 1 February 1999 to 31 January 2000 as well 1 February 2000 to 31 January 2001 in the year 2000. In line with the objective to avoid the payment of income tax for two years in one year, those companies are required to start making tax payment in the month of January 2000 instead of February 1999 on income derived for the period 1 February 1999 to 31 January 2000. At the same time, those companies will also be allowed to settle their tax on income derived in the basis period 2000 until the end of 2001.

 

Q1	:	What is STD / PCB?
A1	:	Schedular Tax Deduction (STD or PCB) which was introduced in 1st January 1995, is a system of tax recovery where employers make deductions from their employees' remuneration every month in accordance with a Schedule. This is mandatory, in that neither the employer nor employee has any choice in the matter. Any deviation from the requirements of the Income Tax (Deduction from Remuneration) Rules 1994 can only be upon written authorization from the Board.
Q2	:	How does STD differ from CP38 deduction?
A2	:	As explained in above, STD is an automatic deduction made every month, while CP 38 deduction arise only when the Board issues a specific direction to the employer requiring him to make deductions of certain amounts for specified months. Such CP 38 deductions are generally towards settlement of outstanding taxes while STD is on current income (PAY AS YOU EARN)
Q3	:	Can STD be remitted through tapes or diskettes?
A3	:	This form of remitting STD is allowed; in fact employers having more than 20 employees are encouraged to submit their STD payments through tapes or diskettes because in this way, processing can be achieved faster and there would be no mistakes in transcribing the details into IRB's computer system. However, whatever mode of remittance that may be used, employers are reminded that they should furnish complete and accurate particulars of all employees so as to avoid delay in crediting the deductions to the respective individual accounts.
Q4	:	What are the payments liable to STD?
A4	:	STD is due only on employment income, i.e., on remuneration that arises from a master servant relationship, and this includes all payment other than benefits-in-kind [Section 13(1)(b)], accommodation benefits [Section 13(1)(c)] and reimbursements. Employment income subject to STD includes salary, wages, commission, overtime, allowances, director' fees, tips and bonuses arising out of exercising the employment. The employer adds up such income, subtracts the employee's EPF contribution (subject to a maximum of RM416. per month or RM 5000 per year), and deducts the STD in accordance with the relevant category in the Schedule that the employee comes under. However, where the payment is bonus or other lump sum amount, a special formula has to be adopted to determine the STD.
Q5	:	Please explain how Form CP159 is to be completed?
A5	:	The Form CP 159 issued to employers forms part of the Form E and the employer is required to show in it details of remuneration and deduction made in each month of the relevant year. The Form CP 159 is a statement of fact; it shows, among other things, the total remuneration paid and the STD deducted therefrom in each of the given months notwithstanding the basis year to which the payment refers. E.g. Bonus for 2000 is paid in February 2001. This will not feature in the CP 159 for 2000 in spite of being payable for 2000. It will only be stated in the CP 159 for 2001, as it was actually paid in 2001. THE FORM CP 159 IS TO BE COMPLETED IN DUPLICATE. [Refer to Statement Of Tax Deductions Under Income Tax (Deduction From Remuneration) Rules 1994 - Form CP159]
Q6	:	How to calculate the STD for director's fees?