Everything u want to know on CYA

What is meant by "CYA system"?

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 year 2000. With this change, it would mean that income derived in the year 2000 will be assessed to tax in the same year.

What is the difference between "CYA" and "preceding year assessment"?

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).

What are the benefits under the "CYA system"?

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

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What are the implications on taxpayers arising from implementing the CYA system in year 2000?

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

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 CYA

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.

Will implementing the "CYA" system affect the Government's cash flow?

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.

Is "CYA" system applicable for the Petroleum Income Tax Act 1967?

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.

What is the tax treatment on dividends with implementing the "CYA" system?

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.

What is the effect of implementing the "CYA" system on companies enjoying incentives under pioneer status?

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.

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How is the tax treatment on non-residents as a result of the implementing "CYA" system?

Presently taxpayers who are non-residents are assessed as follows:-

(i) Income Tax

Taxpayer	Rate of tax (%)
Individuals	30% of chargeable income
Companies	28% of chargeable income

(ii) Withholding Tax

Types of Income	Withholding Tax Rate (%)
Interest	15% on gross income	Final Tax
Technical Fees	10% on gross income	Final Tax
Royalties	10% on gross income	Final Tax
Income of foreign public entertainers	15% on gross income	Final Tax
Contract Payments	15% on contract payment 5% on contract payment for non-resident employees	Not a Final 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 LHDN, 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.

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