Mainstream
Framework to manage tax compliance obligations
Farah Rosley 
Complying with tax obligations calls for understanding the relevant rules and regulations and the implications of non-compliance
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TO promote voluntary tax compliance, Malaysia implemented the self-assessment system of taxation (SAS) since 2001 for companies and 2004 for individuals.

Under the SAS, the onus is on taxpayers to disclose taxable income, compute tax payable correctly, file the relevant tax returns and pay their taxes in a timely fashion. Failure to comply may result in penalties.

For taxpayers to comply with their tax obligations, they need to understand the relevant rules and regulations and the implications of non-compliance.

However, with tax rules and regulations becoming more complex, keeping oneself abreast of tax developments require constant monitoring and updating.

Taxpayers need the necessary knowledge and skills to comply with tax laws. They either acquire this themselves or employ others who have them.

They may even seek to engage the assistance of tax professionals.

With the implementation of the SAS, tax authorities have also shifted their focus and resources to enforcement activities, mainly tax audits and investigations, to ensure taxes are declared accurately.

 

Education is vital

To ensure voluntary compliance, taxpayers must be educated on how to comply with their tax obligations. This is vital.

The on-going development and changes to tax rules and regulations means continuous learning and updating oneself are critical in managing tax compliance requirements.

Naturally, in addition to understanding tax laws, individuals responsible for a company’s tax affairs must have a deep understanding of the company’s business and the transactions it undertakes.

This will help one to apply the relevant legislative provisions to the circumstances at hand.

There also needs to be clear and effective communications that include proactive education and timely information sharing through multiple channels.

Based on a recent survey by Ernst & Young on finance executives in 27 countries, including over 130 chief financial officers, 64% cited insufficient internal communication as a leading source of operational tax risk for some of the largest companies.

For businesses today, there are many critical risks and issues, with tax compliance being a key component.

In fact, in recent years, tax risk management has shot up the priority list of most organisations.

In managing this, companies must adopt different processes to ensure a good documentation trail, use of data analytics and most recently, the digital influence of how we operate daily.

 

Proper framework

Tax functions within an organisation need to have a proper framework to monitor tax obligations, strategies, and ensure the tax process is efficient.

Many companies have policies to address tax risks and benefits. This means that as a key cost component in business, tax matters are being properly managed.

The inherent risks in the tax position of the organisation are also being clearly identified and properly controlled.

Tax risks and management cannot be looked at in isolation from the other parts of an organisation.

Tax risk management must be part of a company’s overall risk management policy and support its governance structure.

As such, having a tax management and compliance framework will indeed contribute to efficiency, particularly in managing tax risks during audits and queries by the tax authorities.

There are various factors that contribute to effective tax compliance. As mentioned, knowledge and education are key.

Organisations must have the right tax talent who are well deployed, coupled with effective policies and processes that can be measured in running the day-to-day business operations.

 

Compliance

This, and the use of tax technology and tools will support better tax compliance.

It is important to note that taking charge of their own tax affairs will empower taxpayers to not only be more efficient and effective, it will also make them more resilient to changes.

This apart, it will place them in a comfortable position to confront and manage any tax risks or challenges by the tax authorities.

Tax rules and regulations are becoming increasingly complex and augmented by factors such as the globalised business landscape and e-commerce.

Hence, there is a need for a systematic and organised approach which ensures all significant tax risks are identified and managed effectively.

Having a good tax function, with sound knowledge and adoption of the correct tax rules and regulations are becoming more important.

Regular communication and addressing tax issues upfront is key. Avoiding surprises is becoming critical on the agendas of senior management, boards of directors and external stakeholders.

Farah Rosley is a partner in Ernst & Young Tax Consultants Sdn Bhd. The views expressed in this article are those of the author and do not necessarily reflect those of the global Ernst & Young organisation or its member firms



This article first appeared in Focus Malaysia Issue 255.