THE government owes taxpayers hundreds of millions ringgit or more in tax refunds. Why the delay in refunds when both the Inland Revenue Board (IRB) and the Royal Malaysian Customs Department are prompt in collecting the taxes? The pendulum should swing both ways.
Generally, we understand that the smaller refunds in straightforward cases are made quickly within a few months automatically or upon an application. The moral of the story is: the bigger the refund, the longer it takes to get it.
How do refunds arise?
In income tax matters, individuals end up overpaying their taxes when their monthly deduction of tax is overdeducted by the employer, when the employer has treated certain exempt benefits as taxable benefits, or when an individual is taxed as a non-resident and thereafter changes his status to a tax resident, or when they refile their earlier returns.
Companies and other business enterprises could also end up overpaying taxes. The most common reason is usually the overpayment of advance taxes for the current year.
Other reasons could be restatement of prior year tax position, or a revision of the prior years’ tax returns to correct the past errors. Tax refunds also arise when businesses overpay taxes during tax audits and investigations and thereafter there is a reduction upon final settlement.
What happens if you do not pay your taxes?
If you do not settle your IRB assessments within 30 days, automatically a 10% penalty will be imposed. In the case of Customs, a bill of demand must be settled within 14 days, otherwise legal action will commence shortly thereafter. Both authorities are now more diligent and quicker in taking action to recover outstanding taxes, which include sending reminders to taxpayers to settle their taxes, issuing travel stoppage orders against company directors, taking the matter to court and obtaining summary judgments, and thereafter leading to the winding up of the business enterprise/company. Be warned that all actions can happen within six to 12 months.
There is nothing wrong with both tax authorities pursuing the taxpayers to collect the taxes as it is the duty of the taxpayers to pay the taxes on time. Good taxpayers should not be subsidising delinquent taxpayers.
Should refunds be delayed?
Although the tax authorities should be saluted for their efficiency in collecting taxes, sadly when it comes to refunds, we cannot say the same. In a tax system that is fair and efficient, refunds should not be delayed unless there are exceptional grounds for suspecting the refunds are not genuine. A reasonable time of, say, three to four months could be given to the authorities to process the claim and meet their internal protocols.
Seeking refunds in some instances leads to audits resulting in further delays of the refund. This should not be the case in a self-assessment system. Tax audits should not be triggered because there is a refund. It should be separated from the refund mechanism based on the premise that majority of the taxpayers are sincere and honest.
We also understand that the delay in the refunds is beyond the control of both tax authorities because of the amount of funds allocated to the tax authorities may be insufficient to settle all the refunds. If the refunds run into millions, the chances are your refunds will be broken up into many payments over perhaps more than a year. This is a matter for the Finance Ministry to resolve.
Suggestion
The refund mechanism must be segregated from the audit process. The refund is part of the compliance process while audit is an enforcement mechanism. Refunds ideally must be made within six months. The longer the refunds are delayed, the image of the tax authorities will be tarnished in the eyes of taxpayers, and it will not help the current push towards increasing taxpayers’ compliance.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director
SM Thanneermalai (www.thannees.com).
Source: The Sun Daily
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