Scam Alert – Tax Investigation Visit

The Inland Revenue Board (IRB) has made an announcement to alert the public on fraudulent tax investigation visits by unauthorised parties.


Tax investigations involve surprise visits to taxpayers’ business premises, personal residences, agents / representatives and various third parties’ premises and are conducted in a professional, courteous, fair and reasonable manner in accordance with the provisions and regulations of the Income Tax Act 1967. They are carried out with priority given to high-profile cases in order to improve compliance.


To avoid falling victim to a scam tax investigation visit by unauthorised persons, the IRB has advised that taxpayers perform the following checks:-


1. Check the authority card carried by the senior officer supervising the investigation; call the number on the authority card; ask for his full name and rank, and then do a further verification

of his identity by contacting the IRB Customer Service Center at 1-300-88-3010;


2. Request the investigating officer to give specific provisions of the Income Tax Act 1967 related to the visit and double-check the answers by contacting the IRB Customer Service Centre at

1-300-88-3010;


3. Request for the telephone number, full name and rank of the senior officer supervising the investigation. Verify with the IRB Customer Service Center at 1-300-88-3010 after details are given.



For more information on how a tax investigation is carried out and the rights and responsibilities of a tax investigation officer, tax agent and taxpayer, members may refer to the Tax Investigation Framework issued by the IRB at our website or at IRB’s website.

Public Ruling No. 6/2012 on Reinvestment Allowance

Please be informed that the Inland Revenue Board (IRB) has uploaded a new Public Ruling No.6/2012: Reinvestment Allowance, issued on 12 October 2012, replacing the Public Ruling No.2/2008 dated 3 April 2008.

The objective of this Public Ruling (PR) is to assist taxpayers in ascertaining their entitlement to Reinvestment Allowance (RA) under Schedule 7A of the Income Tax Act 1967 (ITA) and to provide clarification in relation to:

i. projects that qualify for RA;

ii. expenditure that qualifies for RA;

iii. period of eligibility for RA; and

iv. computation of RA.

Below is a summary of the changes made to PR (No.2/2008)

Changes In This Ruling
Para.	Item (Effective date)	Reference
4.2	Amendment to paragraphs 1, 1A and 1C of Schedule 7A of the ITA 1967 (Year of assessment (YA) 2009)	Budget 2009 (New)
5.3.3	Percentage of statutory income to be utilized for deduction of RA (YA 2012)	Budget 2012 (New)
6.1.1 & 6.1.4	Meaning of “qualifying project” prior to and from YA 2009 (YA 2009)	Budget 2009 (New)
6.3.1	Meaning of “manufacturing” (YA 2009)
6.3.4 & 6.3.5	Concession to allow RA if the first claim made was prior to YA 2009
7.2.1	Meaning of “factory” prior to YA 2012	Budget 2012 (New)
7.2.2	Meaning of “factory” from YA 2012 onwards
8.3	Concept of “qualifying period”	Clarification (New)
9.2.2	Disposal of asset (YA 2009)	Budget 2009 (New)
9.2.3	Concession for assets acquired prior to YA 2009
9.4	Control transfer (from 9.1.2009)
10.4	Change from “period” to “basis period” (YA 2011)	Budget 2011 and 2012 (New)
10.5	Retrospective application of paragraphs 7(b), (d) and (e) (YA 2011)	Budget 2012 (New)
10.7	Non-application with other incentives	Clarification (New)
11.8 & 11.9	RA for business of rearing chicken and ducks (YA 2009)	Budget 2009 (New)

In addition, this PR also includes the following appendices:

Appendix A List of incentives mutually exclusive to RA

Appendix B Computation of Process Efficiency (PE) Ratio

Appendix C List of Non-qualifying activities for RA under Paragraph 9(ii) of Schedule 7A of ITA

Some salient points of this PR are as follows:-

· Paragraph 4 states that with effect from YA 2009, a company or a person has to be in operation for not less than 36 months (instead of 12 months previously), to be eligible for RA. However, where the first claim for RA has been made prior to YA 2009, a concession is given to the claimant to continue claiming RA even though the period of operation may be less than 36 months.

· Paragraph 2 of Schedule 7A of ITA stipulates that RA shall be given for 15 consecutive YAs (eligible period) beginning from the YA in which the first RA claim was made. Paragraph 8 of this PR illustrates how the eligible period is determined. If the qualifying expenditure was first incurred before YA 1998, the eligible period began from YA1998. Where the eligible period has commenced, and the claimant wishes to enjoy a mutually exclusive incentive during the eligible period, then the eligible period will lapse and the claimant will enjoy RA for the balance of the eligible period.

· Paragraph 10 deals with non-application of Schedule 7A of ITA. Paragraph 10.5.2 further provides that, other than for paragraph 7(a), (b), (d) and (e), where a company is affected as a result of the retrospective application of the legislation, the company has to amend the tax computation by withdrawing the RA claimed. Where a penalty has been imposed, an appeal for waiver of the penalty would be considered favorably by the IRB.

· Paragraph 12 indicates the procedures for claiming RA. The original copy of the claim form LHDN/BT/RA/2007 is to be kept by the claimant together with all relevant documents relating to the claim.

We would be pleased if you could let us have your feedback and/or enquiry, so that we may raise it to the IRB.

Members may view the Public Ruling at the CTIM website and the IRB website.

Service Tax (Amendment) Regulations 2012 [P.U.(A) 244/2012]

The above amends Group G in the Second Schedule of the Service Tax Regulations 1975 [P.U. (A) 52/1975] under the heading “Taxable Service” by substituting for item “q” with the following item:


“q”. Provision of hire-and-drive car or hire-car services with or without chauffeur in Peninsular Malaysia licensed under the Land Public Transport Act 2010 and the Commercial Vehicles Licensing Board Act 1987 for Sabah and Sarawak excluding provision of hire-and-drive car as defined under the Tourism Vehicles Licensing Act 1999 as operated by tourism operators registered under the Tourism Industry Act 1992.

The amendment is deemed to have come into operation on 31 January 2011. This is because vehicles licensing for Peninsular Malaysia will be governed by Land Public Transport Act 2010 with effect from 31 January 2011. However, vehicles licensing for Sabah and Sarawak continue to come under the Commercial Vehicles Licensing Board Act 1987.

The provision also clarifies that position of hire-and-drive car operated by tourism operators registered under the Tourism Industry Act 1992, as not a taxable service and thus excluded from service tax.

Guidelines On Treatment of Single Tier Dividend included in Actuarial Surplus That Is Transferred to Shareholders’ Funds

The Inland Revenue Board (IRB) issued the Guidelines On Treatment Of Single Tier Dividend Included In Actuarial Surplus That Is Transferred To Shareholders’ Funds on 27 July, 2012 to clarify the treatment of the subject matter.

Actuarial Surplus (AS) is the surplus balance of the Life Fund (LF) at the end of an accounting period, for the purpose of distribution between shareholders and policy holders. It consists of all incomes received by the LF, including dividend income. The portion of AS transferred to shareholders’ fund (SF) is subject to income tax, without regard for the category of income included therein. This leads to single tier dividends included in the AS being subjected to income tax.

To give effect to the exemption accorded to single tier dividend, single tier dividends included in the AS that is transferred from the LF to SF should be exempted from income tax. The method of computing the exemption of single tier dividend income from AS transferred to SF is provided by the Guidelines as follows:

Determination of the amount of single tier dividend to be exempted:

The amount of AS transferred from the LF to the SF consists of AS for the current year as well as prior years.  To exclude single-tier dividend from AS transferred to SH, the net single-tier dividends should be taken into account.

(i)        To determine the amount of net single tier dividend:

A	x	C   =	D
B

Where       D = net single-tier dividend income

A = AS for the current year

B = total of AS for the current year and AS at the beginning of the year.

C = portion of income from single tier dividend

(ii)     To calculate the amount of net single tier dividend income that is transferred to SF:

E	x	D   =	G
F

Where       G = amount of single tier dividend income transferred to SF

E = AS transferred

F = total of AS transferred and bonus allocated to policyholders

D = net single tier dividend income

Computation of AS transferred to SF that is subject to income tax:

(a)    Calculation of AS from the Life Fund	RM
Gross premium	XX
Deduct: Reinsurance	(XX)
Net Premium	XX
Deduct: Claims/ policy benefits paid and payable upon death/ maturity/ surrender/ cash bonus & etc.	(XX)
	XX
Deduct/ Add: (Increase)/ decrease in reserves (determined by actuary)	(XX)
Agency expenses and commissions	(XX)
Management expenses	(XX)
	XX
Net investment income	XX
Net income from other operations	XX
Surplus before tax	XX
Deduct: Tax	(XX)
Surplus for the year/ Actuarial Surplus (AS)	XX  (A)

(b)  Computation of AS that is transferred to shareholders’ fund	RM
AS not appropriated at the beginning of the year	XX   (B)
Add: AS in the current year	XX   (B)
Deduct: Bonus distributed to Policyholders	(XX)   (F)
Deduct/Add:  Transferred (to)/ from income statement (AS transferred to shareholders’ fund)	(XX)   (E) & (F)
Surplus not appropriated at the end of the year	XX

(c) Computation of net income from investment (consisting of single tier dividends):	RM
Interest	XX
Dividends                         XX  Single tier dividends        XX (C)	XX
Rent	XX
Deduct: Investment expenses	(XX)
Net investment	XX

(d) Computation of AS transferred to SF that is subject to income tax	RM
AS transferred	XX   (E)
Deduct: Amount of single tier dividend income transferred to shareholders’ fund	(XX)  (G)
Income subject to income tax (E – G)	XX

The computation of the amount deducted in respect of net single tier dividend income and the supporting documents must be prepared and shown in the tax computation by the company.  Relevant supporting documents must be kept for the purpose of audit by the IRB.

An example of the computation of the amount of AS transferred to SF which is subject to income tax is shown in the Guidelines.

Members may also view the Guidelines from the IRB website.