How does IRB collect taxes

Related Topics: | Tax Advice | Tax Administration |

How does IRB collect taxes?

The collection of income tax for Peninsular Malaysia is centralized in Kuala Lumpur while Sabah and Sarawak have each of their own collection branches. The assessment branch do not collect taxes but merely issues notice of assessment.

Most taxes are collected at the time when transaction took place -whether it is an employer withholding PAYE tax from an employee, add service tax to engaging a service, add sales tax to purchase price of goods at the point of sale, or pay at source when a license or permit is issued.

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 cooperatives, 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 LHDN.

Business
The business group comprises individuals (sole proprietors and partners) and companies. This category of taxpayers is subject to the installment payment scheme. Under the present arrangement, taxpayers are allowed five (5) bimonthly installments (January, March, May, July and September or February, April, June, August and October).

Others
Same as the business group as mentioned above.

Every year, information and tax returns are filed with the government. Tax returns are required to be filed according to the procedural law governing taxes. For example, individuals are required to file a personal income tax return showing all income received during the past calendar year and a company are required to file corporate tax return not later than 6 months after the close of the last financial year.

If tax payers fail to fill the respective tax returns and information, the IRB will impose stiff penalties plus interest. In some extreme cases, the IRB may initiate a tax investigation on such recalcitrant tax payers.

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