Covid-19: Tax Updates

A.   Tax Relief for SMEs
 
The Prihatin Rakyat Economic Stimulus Package (“Prihatin”) which was recently announced by the Government seems to have provided a breather to the Corporate Taxpayers who are Small Medium Enterprises (“SMEs”). Please note however as at the date of this e-alert, the Inland Revenue Board of Malaysia (“IRB”) has yet to issue an FAQ in relation to this stimulus package. Based on the announcement, SMEs are given 3 months deferment for their monthly tax estimation instalment payment (“CP 204”) effective from 1 April 2020, and SMEs are allowed to revise their CP 204 in the 3rd, 6th and 9th month (“CP 204A”) if they are in the relevant affected industries. The newly introduced CP204A in the 3rd month will need to be submitted manually. The submission of CP 204A in the 6th and 9th month can be done via e-filing.
 
We highlight two points here:
 
  1. SMEs referred to in the Prihatin must fulfil the requirements under Section 2(9) of the Income Tax Act 1967 (“ITA”) – SMEs must have a paid-up capital of not more than RM2.5 million and a gross business income of not more than RM50 million. In addition, SMEs must not be controlled by, or control, directly or indirectly, another company, with a paid-up capital of more than RM2.5 million; and
  1. SMEs must be in the relevant industries which are affected by the Covid-19 pandemic. As observed, no perimeters were laid down by the IRB regarding the relevant industries and how to be regarded as “affected”. In this regard, it would appear  that so long as the SMEs are able to prove to some degree that they are in the industries which were adversely affected by the Covid-19 pandemic, they are eligible for the deferment and revisions offered by the Prihatin. As a matter of prudence and good practice, SMEs should have relevant documentation (e.g. cash flow projection supported by bank statements, and descending forecast income statement supported by orders or projects being cancelled or reduced) to prove that their business was affected. These documents should be properly kept and readily available should there be any issues with the approval of the 3rd month CP204A or later tax audits.
Commentary
 
It is uncertain whether the IRB will waive the penalty under Section 107C(10) of the ITA should the amount of the final tax payable exceed 30% of the revised tax estimation submitted. Such waiver would be a welcome move as whilst the SMEs and Corporate Taxpayers (defined below) are able to revise their tax estimation based on estimates and projections, their ability to do so accurately is compromised as the full economic effects of this pandemic is yet to be seen.
 
B.    Extensions of Tax Deadlines
 
We summarise here the extensions of tax deadlines granted by the IRB as set out in FAQ2 released by the IRB last week:-
 
  1. Extension to 30 April 2020 for filing of tax appeals (i.e. Form Q) if the appeals are due to be filed during the period of the MCO;
  1. Extension to 30 April 2020 with no late payment penalty for any tax payments which are due and payable during the period of MCO;
  1. Extension of two months for filing of tax returns and payment for Individuals, Partnerships, Associations, Deceased Person's Estates, and Hindu Joint Families; and
  1. Extension of two months for filing of  tax returns and payment for Companies, Limited Liability Partnerships, Co-operative Societies, Trust Bodies, Unit Trusts/ Property Trusts, Real Estate Investment Trusts/ Property Trust Funds, Business Trusts and Petroleum (Upstream & Downstream) Companies (“Corporate Taxpayers”) if their financial year ended between 31 July 2019 to 30 November 2019.
Commentary
 
The current extension granted for the monthly tax estimation instalment payment allows the Corporate Taxpayers to defer CP 204 for April to 30 April 2020 with the subsequent May CP 204 unchanged and to be paid on 15 May 2020. With significant disruptions being faced by businesses during the MCO period, it is foreseeable that Corporate Taxpayers may not have sufficient liquidity in the near term to meet back to back CP204 instalments, due on 30 April 2020 and 15 May 2020. Any revision of their CP 204 can also only be done in the 6th month (save for those in the tourism industry which are entitled to revise their tax estimate in April 2020).
 
It remains to be seen whether  the IRB will offer more substantive relief to Corporate Taxpayers in the form of a longer term deferment until at least the end of this year or a waiver of the CP 204 instalments and the corresponding penalty under Section 107C of the ITA to alleviate cash flow and liquidity issues being faced by Corporate Taxpayers as a result of the disruption to their business operations.
 
If you have any queries on the above, please contact Preetha Pillai (Partner) at psp@skrine.com or Desmond Liew (Associate) at desmond.liew@skrine.com.