Expert advice on how SMEs can avoid tax filling as once-a-year scramble

KUALA LUMPUR: Small and medium enterprises (SMEs) should take a more structured approach to manage their corporate tax obligations to avoid penalties and ensure smooth compliance.
Chartered Tax Institute of Malaysia (CTIM) council member Harvindar Singh said while many business owners remain focused on day-to-day operations, tax matters often take a back seat until submission deadlines loom, resulting in rushed filings and avoidable mistakes.
"Tax filing should not be a once-a-year scramble. With the right approach and record-keeping, SMEs can make it a smoother, more predictable process," Harvindar told Business Times in an interview.
Companies have eight months from the end of their financial year to submit their income tax return (Form C), factoring in the Inland Revenue Board's (IRB) one-month grace period.
For instance, a company with a Dec 31, 2024 year-end must file by Aug 31, 2025.
More crucially, companies must also submit tax estimates (Form CP204) a month before the new financial year and make monthly installments starting from the second month.
These estimates can be revised in the sixth, ninth and 11th months of the basis year.
"The IRB discourages taxpayers from using the government as a funding mechanism. It's a pay-as-you-earn system," Harvindar said, adding that penalties apply for underestimation or late payments.
Common mistakes and missed opportunities
Among the most common errors SMEs make are misclassifying deductible and non-deductible expenses, overstating capital expenditures as tax-deductible, and failing to maximise claims on capital allowances.
"A lot of taxpayers do not analyse their expenses properly. Renovation costs, for example, may be lumped under repairs and maintenance and mistakenly claimed as deductions," he explained.
Harvindar emphasised the importance of being aware of eligibility criteria and maintaining proper documentation when it comes to tax incentives.
He said some incentives, like pioneer status or reinvestment allowances, must be approved in advance and may be rejected if a business has already started operations.
"Documentation is key. The IRB can request for original or digital records, and if these are missing or incomplete, legitimate claims may be rejected," he said.
He also advised businesses to structure employee compensation wisely and consider incentives such as the Private Retirement Scheme, which offers corporate tax deductions of up to seven per cent on contributions.
Be audit-ready, always
Harvindar pointed out that companies must always be audit-ready as part of Malaysia's self-assessment tax regime.
Tax audits are typically announced in advance, but investigations can occur unannounced, especially if the IRB suspects malpractice.
"Keep your records for at least seven years, as required by law. Sales invoices, purchase receipts, payroll records, loan agreements—these are all vital," he said.
Businesses with related party transactions must ensure proper transfer pricing documentation is in place to avoid scrutiny during audits.
Staying ahead of tax law changes
With rapid tax law developments, including the rollout of e-invoicing and capital gains tax, Harvindar encouraged SMEs to stay updated through tax professionals.
"Even as a consultant, it's overwhelming to keep up. It's critical for SMEs to work closely with their tax agents or accountants to stay compliant and avoid costly oversights," he said.
Ultimately, good tax planning, according to Harvindar, is not about avoiding tax, but aligning business decisions with the law for optimum outcomes.

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

The Sun

2 days ago

• The Sun

Op Hazard 2.0: IRB to probe financial records of 57 raided e-waste premises

KUALA LUMPUR: The Inland Revenue Board (IRB) will scrutinise the financial records of 57 premises raided during the integrated Op Hazard 2.0 operation, launched on June 16 to crack down on the illegal processing of electrical and electronic waste (e-waste). IRB deputy chief executive officer (Compliance) Datuk Hisham Rusli said preliminary investigations discovered that the illegal e-waste processing factories had collectively evaded taxes exceeding RM500 million. 'Based on current information, several of the premises appear to be operated by the same owner, and we are investigating this further,' he said at a joint press conference with the director of the Bukit Aman Internal Security and Public Order Department (JKDNKA) today. Hisham said that from a taxation standpoint, illegal factories typically either fail to report their income or declare figures significantly lower than their actual earnings. 'We will thoroughly examine their financial records. What we've discovered is that these e-waste processing products are often re-exported at prices many times higher than their original value,' he said. A total of 57 premises involved in the illegal processing of electrical and electronic waste (e-waste) were raided nationwide during the three-day integrated Op Hazard 2.0 operation, with total seizures estimated at RM500 million. The breakdown of the seizures during the operation includes RM240 million worth of e-waste, RM182 million in e-waste components, and RM50 million in worn-out goods. Additionally, items linked to other offences were valued at RM32 million. The value of tax-related investigations stemming from the raids is estimated at approximately RM500 million.

New Straits Times

2 days ago

• New Straits Times

[UPDATED] IRB probes RM500mil tax evasion in illegal e-waste crackdown

KUALA LUMPUR: The Inland Revenue Board (IRB) will be combing through the financial records of the 57 premises at the centre of the recent joint crackdown on illegal e-waste processing. IRB deputy chief executive officer (compliance) Datuk Hisham Rusli said investigations suggest that these illegal processing plants have collectively evaded half a billion ringgit in taxes. "Based on the current information at hand, some of these premises were operated by the same owner," he told reporters at federal police headquarters today. The IRB was among 12 agencies supporting federal Internal Security and Public Order Department in its latest crackdown on e-waste, dubbed Op Hazard 2.0, which ran from June 16 until today. Hisham said there was a possibility that some operators either did not declare their taxes or had under-declared them. "We believe these premises were paid to receive e-waste. "Then they processed the e-waste and received further payments based on the various metals extracted from the smelting process. "Their financial records and accounts will all be analysed further," he said, adding that they believed the finished products were being shipped out, with the operators receiving large payouts. Federal police Internal Security and Public Order Department director Datuk Seri Azmi Abu Kassim said they would continue to involve the IRB in future operations targeting illegal e-waste activities.

New Straits Times

5 days ago

• New Straits Times

Efficient tax rules for contractors bring relief

KUALA LUMPUR: THE government has moved to streamline tax treatment on construction projects, offering a more practical and industry-aligned approach to profit recognition, in a breakthrough welcomed by the construction sector. The Master Builders Association Malaysia (MBAM) on Dec 6, 2021, formally appealed to the Finance Ministry to review the Inland Revenue Board's (IRB) longstanding practice of using the Certificate of Practical Completion (CPC) as the reference point for recognising profits or losses under the Income Tax (Construction Contracts) Regulations 2007 and Public Ruling No. 2/2009. MBAM argued that this approach did not reflect real-world business processes, as the CPC only certifies physical completion, while key financial elements such as variation orders, final costs and contractual claims often remain unresolved post-CPC. Requiring contractors to determine profit or loss at that stage could result in inaccurate tax filings and retrospective adjustments that risk penalties. To address the issue, MBAM proposed recognising project completion based on finalised accounts — either when no further costs are incurred and all payments are made, or within 18 to 24 months after CPC issuance. Through the Technical Working Group on Taxation (TWGT) under the Pemudah Special Taskforce to Facilitate Business, multiple engagements between the ministry, IRBM, MBAM and the Chartered Tax Institute of Malaysia (CTIM) were held between December 2021 and September 2023. This public-private collaboration yielded a practical resolution, where profit or loss recognition could now be deferred to the date final accounts are agreed between contractor and client, or 12 months after project completion — whichever is earlier. Penalties for revised tax returns arising from retrospective profit/loss adjustments will not be imposed, as confirmed through updated guidelines and future enhancements to IRB's public rulings. Following this, a Practice Note was issued on IRB's portal on March 29 last year and a comprehensive amendment to Public Ruling No. 2/2009 is underway, expected to be completed this year. This harmonised tax treatment aligns regulatory requirements with industry operations, supporting the government's Ekonomi Madani agenda to deliver more efficient, affordable housing and infrastructure. POSITIVE IMPACT The move has brought tangible benefits for contractors and construction firms, including improved cash flow management due to accurate tax assessments and reduced reliance on external borrowings, thus lowering business costs. The move also helps to free up financial resources for productivity-enhancing investments and allows greater certainty in tax reporting, reducing administrative and financial risks. MODEL FOR PUBLIC-PRIVATE PARTNERSHIP This success underscores the strength of public-private collaboration under Pemudah's framework, which is co-chaired by the economy minister, chief secretary to the government and a private sector industry leader. The Economy Ministry and the Malaysia Productivity Corporation serve as joint secretariats, while direction is provided by the National Economic Action Council, which is chaired by Prime Minister Datuk Seri Anwar Ibrahim. The initiative is also seen as a benchmark for effective policy reform that balances regulatory compliance with industry practicality, fostering long-term economic sustainability and competitiveness.