Companies are bucking up to meet tax laws
MORE small businesses are trying to get their house in order as the Inland Revenue Board (IRB) steps up efforts in conducting audits.
“Companies are definitely more concerned. We find that some businesses, which previously did not have proper systems, are now setting up a Sdn Bhd and getting things in order. Definitely there will be more self-compliance,” says YYC Group chief executive officer Datin Yap Shin Siang.
Yap notes a higher participation of SMEs at its seminars as more companies are looking to equip themselves with the technical knowledge to comply with tax laws.
Last year, Prime Minister Datuk Seri Najib Razak announced the establishment of the Collection Intelligence Arrangement (CIA) under the Finance Ministry (MOF). The CIA will enable the sharing of data among the IRB, Royal Malaysian Customs Department and Companies Commission Malaysia (SSM) to reduce tax leakage and improve efficiency.
Last month, the Customs Department and IRB inked a standard operating procedure (SOP) for the joint audit programme that will see them conduct joint audits as well as share information on companies to improve the collection of GST and corporate tax.
The joint audits are limited to companies in the Klang Valley for now but would soon be extended nationwide.
This is a good move, says Yap, in creating a more conducive business environment as it encourages companies to be more transparent and compliant.
Traditionally, she notes, companies tend to look more into reducing the taxes that they have to pay rather than try to put together an accurate account of the business.
“This could result in a lot of wrong decisions made. If they just focus on evading tax, they may compromise on their data and they won’t be able to make accurate decisions, which will have an adverse effect on the business,” she explains.
However, YYC tax director Zen Chow adds that not every SME is out to evade taxes.
“While it’s true that some SMEs don’t bother because they feel that they can take chances with the loose tax laws, some SMEs actually want to comply and want to pay the correct tax. They just lack the knowledge and professional guidance to help them comply with income tax laws,” he says.
According to Chow, the challenge for small businesses in complying with tax laws is their inability to differentiate deductible and non-deductible expenses.
For example, summonses for dirty trucks are often treated as a business expense and recorded as such for a construction project.
But these are not deductible, says Chow, as they are payments made for violating the law and not for the operation of the business.
Additionally, record keeping can be a challenge for small businesses that don’t have the budget to hire an accountant to help them keep proper records.
“The business owner will try to do everything on their own. So they make mistakes easily,” he says.
“But being audited is a common thing and it is something that should be expected by companies. Not every audit means you did something wrong. It is just likely that the company is in a higher-risk category for under-declaration. Cases can be closed without a problem if everything is in compliance,” says Chow.
A tax audit is done to check that a company has paid the correct amount of tax.
A tax investigation, on the other hand, is a more severe approach taken by the authorities to find out how much tax a company has evaded.
Notably, the majority of companies that are audited do end up getting fined as most don’t have the full knowledge to be compliant.
He notes that industries that deal more with cash have a higher tendency for non-compliance.
“We can see a correlation between tax compliance and the effectiveness of enforcement. The stricter the enforcement, the higher the compliance.
“So CIA will help with the enforcement level and in turn, will result in higher compliance among businesses,” he says.
“SMEs are definitely changing their mindsets. They are seeking further consultation with us to find out where they need to buck up. Businesses that want to do things right can come to us for planning to maximise their tax benefits. I think there is a real need to help SMEs in this,” adds Yap.