LECTURER’S NAME: DR ROHILA @ NORHAMIZAH BT AWANG

SUBJECT: TAXATION 1

CODE SUBJECT: ACT3413

ASSIGNMENT: PART 2

TITLE OF ASSIGNMENT: TAXPAYER COMPLIANCE ISSUE AND ETHICAL DILEMMA

GROUP MEMBERS:

NAME MATRIC NUMBER

NUR HIDAYU BINTI RAMZI S61962
NUR NAJIHAH BINTI AZMAN S62304
NUR ARINAH AQILAH BINTI ABD GHAFAR S62347
YASMIN SUFI BINTI HARUN S62425
NUR ZULAIKHA BINTI ZAINUDIN S63251
Table of Contents

QUESTION 1..................................................................................................................................1
QUESTION 2..................................................................................................................................2
QUESTION 3..................................................................................................................................3
QUESTION 4..................................................................................................................................4
QUESTION 5..................................................................................................................................5
QUESTION 6..................................................................................................................................6
QUESTION 7..................................................................................................................................7
QUESTION 8..................................................................................................................................8
REFERENCE..................................................................................................................................9
THE TASK:

You as students should assume that you are either a professional tax consultant or tax expert. The
taxpayer approaches you to get tax advice. Considering all the information available in the
course ACT3413/ACT3401 you need to discuss the problems in every situation, provide and
advice the proper tax treatment to ensure that the taxpayer ethically comply with the tax rules
and regulations:

QUESTION 1

1. In the year 2022, a company replaced the engine for 2 garbage truck aimed to upgrade the
power and speed of the vehicle. The cost for the engine is RM5,000 each. Although the company
acknowledge that such expenses is regarded as capital expenditure, the company records this as
allowable expenses to simplify the recording process.

Implication of violation of the tax law to the government

Based on the previous statement, the corporation is in tax violation when it lists the cost of
replacing the engines in two garbage trucks in order to increase their performance and speed as
allowable expenses. As a result, the government's income will drop to RM2,800 (maximum)
(RM10,000*28%).

Section in relevant
A capital expenditure is defined by Section 33 of the Income Tax Act of 1967 as the amount of
money that an organization spends to buy, maintain, or upgrade a fixed asset, such as a vehicle,
equipment, or land. A capital expenditure is a cost incurred when an asset is either newly
purchased or upgraded to extend its useful life, such as by upgrading a vehicle's engine.

Proper Treatment
Since this expense will benefit the business and be recorded as an asset, the firm should not
claim it as an allowable expense. At the same time, Section 33(1) of the Income Tax Act of
1967's deductibility rules would also expire. This taxable income should be subject to the
provisions of Section 4(a) of the Income Tax Act of 1967. Thus, the company should therefore
increase changeable income.

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QUESTION 2

2. Zara started her online business from her house since 2018 and earns almost RM300,000
throughout the years. The highest income was generated during Movement Control Order
(MCO) in 2020 amounting to RM100,000. Zara never registered her business and did not pay tax
to the government.

Implication of violation of the tax law

Zara broke the law by failing to report her online business income tax to the IRBM since she
never registered with her company. According to REGISTRATION OF BUSINESS ACT 1956
Section 12(1) (a), the Companies Commission of Malaysia (SSM) will penalty to Zara with a
fine not exceeding RM50,000 or to imprisonment for a term not exceeding 2 years, or both. In
conclusion, Zara only needs to register her business.

Section in relevant
Based on Section 4(a) Income Tax Act 1967, the business income is defined as gains or profits
from an ongoing business.

Proper treatment
The REGISTRATION OF BUSINESS ACT OF 1956 governs Zara's business registration, and
her business’s income must come from its primary business activity. The total income of
RM100,000 during the Movement Control Order (MCO) should be charged under section 4(a).

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QUESTION 3

3. You have been instructed by the director in a company that you are working, to reduce the
amount of sales from RM150,000 to RM100,000. This sale was related to sales to his brother’s
company. The purpose of this reduction in the invoice is to reduce the company profit when
preparing the financial report. This action is done regularly by the director in transactions
involving related party sales.
Implication of violation of the tax law
This is unethical behavior because the government cannot charge tax on the amount of
RM50,000 as it is stated as RM100,000 instead of RM150,000. Even though the sales come from
family member of director, we need to be professional and fair. This is affected by the
government revenue less received RM14,000 maximum (RM50,000*28%). It means that the
director faces a penalty for the violation of the tax law.
Section in relevant
Based on Section 114 (1A) Income Tax Act 1967, the director assists me in the preparation of
any return where the return results in an understatement of the liability for tax of the company
with RM14,000 (maximum). The director will penalize a fine of not less than RM2,000 and not
more than RM20,000 or imprisonment for a term not exceeding 3 years or both if this case did
not correction. In Section 4C Income Tax Act 1967 provides “for the purpose of paragraph 4(a),
gains or profits from a business shall include an amount receivable arising from stock in trade
parted with by any element of compulsion including on requisition or compulsory acquisition or
in a similar manner”.
Proper Treatment
Therefore, the real amount of sales receipt should be recorded at RM150,000 as the gains from
the business.

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QUESTION 4

4. Since 2017, Miss Alma claims full relief for books and lifestyle. However, she did not really
spend the money as per what she claims under relief and rebates. Few fake invoices were created
to be included as proof of if she will be audited. So far, she never being audited by IRB.

Implication of violation of the tax law

This behavior is not ethical. This tax violation will decrease the company’s net profit and reduce
the income tax amount paid by the company.
Section in relevant
According to Section 33(1) Income Tax Act 1967, business expenses can deduct from gross
income of business when each business source has to accounted separately, the scope expense
refers to ‘outgoing and expenses, expenses have to be ‘wholly and exclusively and incurred
during that period in the production of gross income from that business source. Fake invoices did
not incur because the invoice is fake and did not happen in reality.
Proper Treatment
So, the expenses from the fake invoices are not allowable expenses and need to add back to
company net profit in adjusted business income.

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QUESTION 5

5. Azman is a lecturer who is expert in statistical techniques. He always being invited to give a
talk to local and international institutions regarding research techniques. For the year 2021, he
received a payment of RM15,000 for a series of talks held during the year. These payments are
not recorded in the income statement, and he did not report this receipt during the submission of
annual tax return.
Implication of violation of the tax law
The violation of the tax law is he did not report this income during the submission of annual tax
return. It means Azman faces an omitting or understating income condition in form BE based on
Section 113(1) Income Tax Act 1967 and Section 113(2) Income Tax 1967. Azman pays wrong
incorrect return to IRBM, it wills two conditions which is prosecution and no prosecution. If the
person satisfies the Court that the incorrect return or incorrect information was made or given in
good faith, this case shows no prosecution. If not prove to Court, this case show to prosecution.
For no prosecution, the penalty equal to tax undercharged and fine between RM1,000 to
RM10,000 and plus, of two (2) times penalty the tax payable for prosecution.
Section in relevant
Based on Section 13 (1)(a) Income Tax Act 1967, “gross income of an employee in respect of
gains or profits from an employment includes any wages, salary, remuneration, leave pay, fee,
commission, bonus, gratuity, perquisite or allowance (whether in money or otherwise) in respect
of having or exercising the employment”. A series of talks is more related to salary that relate to
my employment and the income can convertible into money.
Proper Treatment
Azman should plus RM15,000 to the employment income because this income related to income
that my ordinary course of employment. Since Azman has already submitted to IRBM with
Income Tax Return Form (ITRF), Azman need submit Amended Return Form (ARF) with self-
amendment within 6 months to the IRBM’s branch that handles my income tax file. This self-
amendment is allowed only once for each year of assessment. Based on Section 152, Azman
need to pay penalty within 60 days from the due date of the submission of tax return with 10%
and after 60 days to 6 months the due date of the submission of tax return with 5% on the 10%.

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QUESTION 6

6. As the new accounting assistant in one of the well-known manufacturing company in Kuala
Kangsar, Miss Ateha realizes that few prohibited expenses such as owner and family members
personal expenses have been recorded as allowable expenses. Based on the previous year of the
company account, treating such items as allowable expenses has been the normal practice of the
company since its establishment.
Implication of violation of the tax law
Based on the above, tax violation for this statement is the company recorded some expense that
are not allowed such as owner and family members personal expenses to be recorded as
allowable expense. If company usually recorded some expenses that are not allowed to allowable
expense with careless and the regulator find out old accounting assistant give an improper
information, the company will face omitting or understating income condition based on Section
113(1) Income Tax Act 1967 and Section 113(2) Income Tax 1967. The company pays wrong
with incorrect return to Inland Revenue Board of Malaysia (IRBM), it will two conditions which
is prosecution and no prosecution. If the owner of the company satisfies the Court that the
incorrect return or incorrect information was made or given in good faith, this case shows to no
prosecution. If the owner of the company did not prove to Court, this case show to prosecution.
For no prosecution, the penalty equal to tax undercharged while for prosecution, the penalty fine
between RM1,000 to RM10,000 and plus, of two (2) times penalty the tax payable.
Section in relevant
According to Section 33(1) Income Tax 1967, the business expense has to fulfill all of 5
conditions in order to secure a deduction from the gross income of a business source which is:
(a)Each business source has to be accounted separately;
(b)The scope of expense refers to ‘outgoings and expenses’;
(c) The expenses have to be ‘wholly and exclusively’;
(d)Incurred;
(e)In the production of gross income from that business source.
Proper Treatment
There are the conditions of business expense that can be an allowable expense. Some expenses
that are not allowable is not having that condition. For example, private expense is not an
allowable expense because it is no related to business. So that, Miss Ateha needs to add back to
adjusted business income or changeable income.

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QUESTION 7

7. Encik Alif retired from his job as an IT consultant with UMT on 31 December 2020 and
received monthly pension RM3,000 per month. From 1 February 2021 he decided to become a
part-time consultant to Azmin Sdn Bhd. He received a total of RM48,000 from the period of 1
February 2021 to 31 December 2021. However, he makes a special request to the company to put
that amount as miscellaneous expenses, not as a payment to him. Encik Alif did not report the
income.

Implication of violation of the tax law

The violation of the tax law is Encik Alif’s request to the corporation to classify a total of
RM48,000 as miscellaneous expenses while failing to disclose the income. If Encik Alif does not
remedy his error, he will be charged with wilful evasion. Based on Section 114(1) Income Tax
Act 1967, “any person who wilfully and with intent to evade or assists any other person to evade
tax (a) omits from a return made under his Act any income which should be included”. The
prosecutor will next accuse him of intentionally committing this crime. In addition to paying a
special penalty of trebling the amount of tax that was undercharged as a result of the offence, he
must pay a fine of not less than RM1,000 and not exceeding RM20,000, three years in prison, or
both.
Section in relevant
According to Section 13(1) (a) Income Tax Act 1967, “gross income includes one’s wages,
salary, remuneration, leave pay, fee, commission, bonus, gratuity, perquisite or allowance
(whether money or otherwise) in respect of having an employment”.
Proper treatment
Under employment income, a total of RM48,000 should be subject to tax. Encik Alif ought to
declare it as payment of salary rather than other expenses. He must therefore inform IRBM of the
amount of his income. Encik Alif must submit an Amended Return Form (ARF) with a self-
amendment to the IRBM branch that manages his income tax file because he failed to report this
income. This self-amendment is permitted only once for each evaluation year. Based on Section
152 Income Tax Act 1967, Encik Alif need to pay penalty within 60 days from the due date of
the submission of tax return with 10% and after 60 days to 6 months the due date of the
submission of tax return with 5% on the 10%.

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QUESTION 8

8. Mr. Razif remitted RM100,000 from Australia on 15 May 2021. The income was generated
from the sale of keropok ikan for the whole year. Mr Razif did not declare the amount as he has
already paid transport charges and export duty.

Implication of violation of the tax law

In this case, Mr. Razif has violated the tax laws by failing to disclose the money he got for the
entire year from the sale of keropok ikan. If Mr. Razif had not revealed this income, he would
have been subject to an omitting income tax condition under Sections 113(1) and 113(2) of the
Income Tax Act of 1967. There are two alternatives if the corporation submits IRBM the
incorrect amount of money along with the incorrect return which is prosecution or no
prosecution. This case shows that there will not be any legal action taken if the business owner
can persuade the court that the inaccurate return was made in good faith. If the company owner
had not provided proof to the court, there would have been a prosecution. If no charges are filed,
the fine is equal to the undercharged tax; however, if charges are filed, the fine ranges from
RM1,000 to RM10,000 plus two times the amount of the tax due.

Section in relevant
The cost was regarded as current and taxable in the year that it contributed to the development of
company income from the sale of keropok ikan, which was wholly and exclusively incurred in
the production income, in accordance with Section 4(a) of the Income Tax Act of 1967. Any
gross gains made by an individual from a business operated inside Malaysia are regarded as
coming from Malaysia, per Section 12(1)(a). Thus, it indicates that Mr. Razif is involved in
Malaysian business.

Proper Treatment
As a result, RM 100,000 should be taxed and qualify for a Section 33 deduction for business
expenses. Mr. Razif was required to record the amount as business income but because he
neglected to report this income, Mr. Razif must send an Amended Return Form (ARF) with self-
amendment to the IRBM branch that handles his income tax file. Mr. Razif must pay a 10%
penalty under Section 152 of the Income Tax Act of 1967 within 60 days after the tax return's
due date, and a 5% surcharge if the penalty is paid after that time but within six months.

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REFERENCE

1. Inland Revenue Board of Malaysia - hasil. Retrieved December 23, 2022, from
http://lampiran1.hasil.gov.my/pdf/pdfam/PR_06_2019.pdf

2. Amended return form of an individual amended year of assessment - hasil. Retrieved

December 23, 2022, from
https://phl.hasil.gov.my/pdf/pdfborang/B2016_AmendedRF_2.pdf
3. Choong. (2022, May 1). Malaysian Taxation - Principles and Practice (2022, 28th Ed).
InfoWorld.
4. LAW OF MALAYSIA ACT 197 - REGISTRATION OF BUSINESS ACT 1956. (n.d.).
Retrieved December 24, 2022, from https://www.ssm.com.my/bm/acts/a0197pdf.pdf

5. Chen, J. (2022, November 9). Income statement: How to read and use it. Investopedia.
Retrieved December 22, 2022, from
https://www.investopedia.com/terms/i/incomestatement.asp
6. PKS (Ed.). (2021, October 14). Memahami Percukaian. Memahami Percukaian – Portal
SMEinfo. Retrieved December 22, 2022, from
https://www.smeinfo.com.my/menguruskan-kewangan-perniagaan-anda/memahami-
percukaian/
7. IncomeTax.MY (Ed.). (2011). Tax investigation. Tax Investigation - IncomeTax.MY.
Retrieved December 22, 2022, from https://incometax.my/law/Tax_Investigation.htm
8. Registration of Business Act- (Ordinance No. 47 of 1956); Revised: 1971 (Act 197 w.e.f.
15 February 1978). Retrieved December 24, 2022, from:
http://www.agc.gov.my/agcportal/uploads/files/Publications/LOM/EN/Act%20197.pdf

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