AICPA Principles/Definition

1.Equity and Fairness.

Similarly situated taxpayers
should be taxed similarly.

Individual / Corporate Tax (Direct Tax)

Economically, all income is taxed
Difficult to convince most individuals that investment income
is taxed the same as earned income when only earned
income is reported on a tax return.
Thus, it will generally not be apparent that horizontal equity is
achieved.
The fairness principles also leads to an issue where an extra
deduction for interest be allowed for individuals claiming
the standard deduction.
Thus, would equity and fairness be better met by just
increasing the standard deduction.

Sales & Service Tax (Indirect Tax)

Taxable person imposed limited :
Only 9 groups of services including hotel, restaurant, night club, private
club, Golf, hospital, insurance, professional services, multimedia and
communication and many others stipulated in schedule II of Service Tax
Act 1975. Other service provider such as information technology (IT),
trust and property management are tax exempted.
Different threshold restaurant and employment agency is at RM 300,000
but services like advertising and parking is at RM 150,000. Professional
services like management consultancy, legal advices and accountant
have no threshold.
Only certain approved industry or licensee can enjoy tax inclusive
facilities which of course give a wide difference in term of tax collected.

2. Certainty.
The tax rules should clearly
specify when the tax is to be paid,
how it is to be paid, and how the
amount to be paid is to be
determined.

The tax on individual and business is quite clear.

This is because where it is difficult or impractical to collect tax
from such person, the Act provides for the appointment of
agents or representatives to be assessed and charged to
tax on behalf of such person.
But it rises a second issue of level of technology readiness of
Malaysian tax practitioners and their usage intentions
towards an electronic filing system.
The issue that rises in this principle is that whether it is best
to collect the tax from a manufacturer, wholesaler, retailer
or customer as well as collection frequency.
Second issue lead to the transfer pricing payment. This is
because when not carefully managed, can create
significant risks and costs for payments organizations now
and in the future. Example of risk is lacking of business unit
awareness of transfer pricing risks and opportunity.
According to Muzainah Mansor et,al, 2005
issue whether the present system of indirect tax has
achieved to collect the countrys indirect taxes efficiently
and effectively.
weaknesses of the present system were highlighted by the
reports that the government lost about 170 million of
indirect tax revenue as of April 2002 and about RM1.2
billion at the year 2002 due to poor enforcement.
Besides that IRB having less issue in collecting the taxes as
stated in star online dated April, 9 2013. This is because
IRB collects taxes with the cooperation of 13 collection
agents including Maybank, Bank Rakyat, CIMB, Public

The taxable schedule is payable for every two months and due date of
payment is clearly specified. However, there are two different schedule
of payment 1) payable every odd month licensee (ie: tax received for
January February will be paid on March) and 2) even month licensee
(ie: tax received for February March will be paid on April).

3.Convenience of Payment.
A tax should be due at a time or in
a manner that is most likely to be
convenient for the taxpayer.

4. Economy in Collection.
The costs to collect a tax should
be kept to a minimum for both the
government and taxpayers.

Given 28 days to declare and pay the tax to RMCD offices nationwide.
The medium of payment through the normal counter, easy drop counter
and by mail.
Online payment has been introduced in early 2014 to promote
convenient of payment.

According to Muzainah Mansor et,al, 2005 it state the issue on present

system of indirect tax has not achieved to collect the countrys indirect
taxes efficiently and effectively.
weaknesses of the present system were highlighted by the reports that
the government lost about 170 million of indirect tax revenue as of
April 2002 and about RM1.2 billion at the year 2002 due to poor
enforcement.
At average 1000 2000 licensee reported failed to declared and paid
their SST every months
With online payment the collected tax would be reduced as gov has to
bear the transaction online cost amount to RM. 0.50 for every
transaction payable to the Banks agent which is RHB Bank and Meps

Bank, RHB and HSBC as well as Pos Malaysia.

5. Simplicity.
The tax law should be simple so
that taxpayers understand the
rules and can comply with them
correctly and in a cost-efficient
manner.

The simplicity, certainty and neutrality principles are

frequently challenged at both the Federal and State
level, as new rules are added to create special
deductions, exemption and tax credits.
It is not an easy to include uniformity of new rules and
procedures. Besides that people need to have
additional recordkeeping burdens and they need to
know the basic charitable deduction rules.

two payment bases; 1) collection basis; and 2) invoice basis. adopt

consistently and cant mix any of the selected bases. Secondly, when
payment is due : pay upfront any uncollected amount within 12 months
from the invoice date.
licensee has to clearly segregate between the taxable and non-taxable
service in the invoices. Not only that, the complexities of business
chain make it difficult for licensee on how to charge and collect the tax
and who is the final licensee to pay the tax in the event of joint-licensee
involved in particular business chain which is commonly practice
nowadays.
For example, in a consortium construction project involved 3 different
licensees it will create confusion as to whether they have to pay the tax
separately or payable by the main contractor. The current practice
accept both type of declaration which create confusion and
unstandardized declaration issues. Also, it creates complexities for the
RMCD auditor to audit and cross check the tax compliance among
licensee especially big companies.

6. Neutrality.
The effect of the tax law on a
taxpayers decisions as to how to
carry out a particular transaction
or whether to engage in a
transaction should be kept to a
minimum.
7. Economic Growth and
Efficiency.
The multiplier effect on indirect
tax system is hardly to be
determined.

The issues in neutrality come in place as it affect a persons

decision as to how to spend, with an added incentive to
donate to a charitable organization.
Second issues in neutrality are in e-commerce business.
Difficult to trace individual who running online business
thru permanent establishment issue avoid sales tax
In Malaysia the effect on the economy is difficult to measure,
because some of the donated funds would otherwise
have been spent for other purposes.
Second issue is that many people believe that the internet is
growing regardless of current tax rules.
Thus today, online purchases are subject to sales and use
but however the states ability to collect use tax on remote
online sales is quite low.

Exemption on that business in free trade zone like Langkawi, Labuan,

Tioman and the Joint Development Area
Exemption facility for sales tax; raw materials for export and government
used
To attract foreign direct investment and retain those multinational
companies (MNC) to spur economy growth and efficiency in Malaysia.

8. Transparency and Visibility.

Taxpayers should know that a tax
exists and how and when it is
imposed upon them and others.

The transparency and visibility issues occur because

consumers may not know that sales tax exists in
online purchases and they believe the sale is exempt.
Thus in reality consumer likely needs to self-access
use tax.

Tax ruling and relevant act deemed as not transparent and visible to the
public as the proper treatment and specific guidelines is absent even in
the RMCD website.
The licensee has to come over the counter to get all the information and
normally is lacking the black and white answer.
Depending on the competency of the officer consultancy which maybe
varies among them

The service tax system has so far contradicted with several guideline
principles of fairness and equity, certainty, economy of collection and
simplicity. Thus, this tax system does not meet the neutrality criteria as
it give confusion and also leads to more tax evasion among licensee.

Besides that it raises the issue of difficulty of tax payer to

understand the indirect taxes. This is because an indirect tax
may increase the price of a good so that consumers are actually
paying the tax by paying more for the products.
The degree to which the burden of a tax is shifted determines
whether a tax is primarily direct or primarily indirect.
9. Minimum Tax Gap.
A tax should be structured to
minimize noncompliance.

In the implementation of GST, KPMG Malaysia reported said

that it is not just a tax issue, it is a whole of the business
issue. This is because no one will be exempt from GST
regime, from multinational companies to small and
medium business owners, therefore the business
community must start to plan and manage this tax
transition.
Second issue is that business not only pay attention to
achieving compliance with the GST law and regulations
but it also important to consider whether there are any
opportunities that should be engage. For example the risk
management of GST issue must be part of the
organizations risk management process

Rohaya Md Noor (2013) using sample data comprised of 275 taxable

service providers subjected to tax audit during the years 2009 to 2011.
Tax gap exist in the service industry thus its shows that there is a
significant difference between declared service tax and actual service
tax value. It was found that there are four factors which can be
associated with service tax evasion: 1) Service providers which are
subjected to the threshold limit; 2) The smaller size of service
providers; 3) Service providers that engaged smaller sized audit firms;
and 4) Service providers which do not submit the required tax return
forms.

10. Appropriate Government

Revenues.
The tax system should enable the
government to determine how
much tax revenue will likely be
collected and when.

Corporate income tax is an important source of government

revenue.
First issues of revenue growth generally slow during
recessions and accelerates during expansions. This is
because countries that depend heavily on taxation of
natural resources such as oil or minerals are especially
vulnerable to cyclical swings, with wide swings in
commodity prices changing the level of tax revenues.
Second issue here is that whether foreign direct investment
tends to enhance economic growth more efficiently when
a recipient country has a well-developed and wellfunctioning financial sector.
This is because the World Foreign Investment Report (WIR)
2010 released by the United Nations showed that FDI in
Malaysia plunged 81 per cent in 2009, trailing behind
countries like the Philippines, Vietnam, Thailand,
Indonesia and Singapore.

Based on Government statistics, the present tax system may not be

sustainable, given Malaysias ambition to become a high income nation
by the year 2020. The focus of the current tax system in Malaysia is on
income tax, and indirect taxes contribute only 17.8% of revenue.
Even though it is estimated that less than 10% of the 28 million
population of Malaysia pay income tax, which has been the case for
many years, a major change in the tax system would be required to
address the growing Government revenue requirements
Decline in petroleum income, which makes up approximately 35% of the
Governments total revenue.

SUGGESSTION

Review Tax Incentive against the economic multiplier effect.

GST was announced as one of the six Strategic Reform Initiatives under
the Economic Transformation Programme.

Most MNC want to enjoy the incentives rather than long

term business sustainability. Quickly switch strategy to
other developing countries who offer better tax incentives
Create imbalance among industry because certain industry
have to pay more than the other
Corporate tax should be reducing further as Singapore
already capped at 17%. More attractive for businesses
than Malaysia
Simplified the multi-tier calculation for individual tax income
and if possible capped at one std tax rate rather than
multi-range of tax rate.

Government debt capped below 55% of GDP, fiscal deficit would decline
to 3%.
As GST in Malaysia would replace the existing Sales and Service Tax,
any inflationary element is not expected to be significant. At the
originally proposed GST rate of 4 - 6%, prices are not expected to
increase significantly and, for certain goods, e.g. beer, prices are
expected to decrease.
In the 2013 Budget the Malaysian Prime Minister announced a 1%
reduction in income tax rates for individuals in the lower bands from
25% to 24% in 2015. The reduction of income tax rates was given in
anticipation of the imminent transition from the current tax system to a
tax system that is fairer.