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