TNB Tenaga Nasional Berhad : Demystifying audit and tax issues - Focus Malaysia

Headline MediaTitle Date Circulation Section ArticleSize PR Value -	Demystifying audit and tax issues
	Focus Malaysia
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Demystifying audit and tax issues

SMEs need to take proactive

action to keep up with regulation changes

by Behonce Beh

PAYING taxes and running businesses go hand in hand. Despite its impor­ tance, many tend to brush off the need to understand the concept.

The lax approach towards tax issues could be one of the key reasons why SMEs continue to face countless prob­ lems with their tax filings.

Tax regulations are often amended annually based on

(MIA) CEO Dr Nurmazilah Mahzan points out that it is common for SMEs to leave audit to the last as they often focus on daily operations.

"Understandably, SMEs would strug­ gle with issues such as marketability and they might not see audit as their priority. In terms of relevance, audit is just as important for SMEs as. much as it is for large corporations;' she adds.

MIA vice-president Datuk Zaiton Mohd Hassan says a company's financial health extends beyond bank statements and profits.

"You need to keep proper records. If

you keep proper records, it will help in the auditing process. You should get your accounts audited regardless of whether you're making money or not.

"Even if the company is making a loss, it still needs to find out why, and the cause can be found once it's been audited;' says Zaiton.

Auditing is said to reduce financing costs as it raises the ability to improve decision- making. Because the result of the audit process is an independent

An independent and professionally conducted audit can make a difference between a respected supplier extending credit or refusing it.

"Auditing is not only important to those who [are] giving funds, but even suppliers would like to see audited numbers before giving credit as trust is on the line;' Zaiton adds.

With the help of an auditor, busi­ nesses will not only have extra time to generate revenue, but will also have peace of mind that an expert is taking care of the details. Auditing does not

only increase the credibility of SMEs when dealing with creditors as well as investors, but it also gives confidence to customers as it shows the integrity of the operation.

In-house best practices

Once the audit process has concluded, companies are able to send the records and accounts to be compiled for filing by a tax agent. The misnomer of paying too much taxes often comes into play during this stage and some business owners

the Finance Bill. Under these ever-chang­ ing circumstances and a reactive attitude, SMEs may not be fully aware of potential tax reliefs, and some have difficulties dealing with tax-related compliance.

Tax computation

All that's said and done, SMEs still feel they are paying too much taxes. To understand why businesses feel that way, the first item on their to-do list should be to take a good look at their business operations.

Tax computation starts with audited figures, and it is essential for businesses to not only plan ahead, but also to get it done as early as possible

Malaysian Institute of Accountants

opinion given by trained professionals

who are governed by a strict code of ethics, it adds credibility to the company and therefore leads to better investment decisions by investors and better policy decisions by the authorities.

Zaiton explains, "Banks will have to go through an annual loan review and it is important for them to know if compa­ nies are audited. Even agencies such as

SME Corp would prefer to award grants to companies which are audited:'

In addition, auditing is also helpful as it will gain the trust of suppliers. Typically, suppliers would want to know whether a customer is creditworthy, and whether a company pays its bills on time and will remain solvent in the near future.

may convince their tax agents to engage

in some form for "creative" but highly dubious accounting practices.

Crowe Horwath KL Tax Sdn Bhd tax executive director Pennie Lim Phaik Hui strongly discourages such malpractice and suggests SMEs get their in-house finance and accounts team to be on top of their game when it comes to how new tax rulings affect their accounting practices.

"Once they [in-house accountants] are aware of the updates, they are able to record transactions correctly while backing it up with the right supporting documents as opposed to waiting for their auditors and tax agents to request for them:'

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Lim says important supporting makes it easier for GST submission.

documents such as invoices, vouchers, "Should that be the case, compa-

official receipts, contracts and agree- nies would then be required to have a

ments should be kept and labelled few more sets of accounts to cater to

properly to reflect relevant records. different sources of income:'

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However, Malaysia's "tidak apa" attitude still prevails when it comes to being proactive on tax updates.

According to Cheng and Co Tax­ ation Sdn Bhd tax director Lam Kwai Soon, the firm's annual budget talk would typically see only 10% of their total customer base respond.

Business owners and even account­ ants would shrug off the invitation, often preferring to engage with the firm's tax agents as and when needed, he says.

"Business owners may not need to know the details of the tax system but should have an idea of what they are about.

"It is better to plan ahead. This allows your tax agent time to help you when you need it most;' suggests Lam on taking proactive measures on taxation.

"That said, the introduction of GST [goods and services tax] ruling for monthly or quarterly reporting depending on the size of the com­ pany does help businesses expedite the accounting process, but whether SMEs manage their accounts process better; that depends on the quality of the team;' says Crowe Horwath's Lim.

Nitty-gritty issues

Beyond bookkeeping, how a company is structured can play a role in how much tax it pays.

For starters, some companies prefer to have multiple subsidiaries for different business activities. While this could work to their benefit when applying for certain incentives, it could also incur higher compliance costs.

Lam says there are two conflicting views on the matter; namely from the GST and income tax points of view.

"From the GST view, grouping all subsidiaries under one company

have two companies; one to reflect its manufacturing activity while the other for marketing purposes. The profitable marketing armwould likely be used to set off the loss-making manufacturing arm.

Such practices are frowned upon from a tax point of view and could incur possible penalties.

IRB knocking at the door

SMEs must not panic if they find the Inland Revenue Board (IRB) is keen to come over for an audit. Itis to ensure compliance over the self-assessment system (SAS) and does not mean you have done something wrong.

Lam says there are occasions when the IRB believes documentation pro­ vided to be insufficient to justify why a

certain deduction was made. All these issues can be avoided with proper documentation and bookkeeping practices.

"Insufficient documentation can lead you to pay more tax. Tax agents tend to disallow certain deductions if there are no documentation to support the claims;' he explains.

The IRB, according to Lam, is now more savvy with industry malprac­ tices owing to more than a decade of deploying the SAS. "They have seen enough, know what you are doing and where to catch:'

"Sometimes, you would not know what the issue is until it [IRB] tell you. These issues would often be claims or decisions perceived to be a non-issue by a business owner:'

Lim explains the conflicting points of view stem from IRB officers who are well-trained in compliance but may not be as business savvy as business owners who are always on the lookout for ways to stay profitable.

The clash between taxpayers and tax collectors reflected in the 2015 dispute between Tenaga Nasional Bhd (TNB) and IRB over a RM2.07 bil tax bill. The dispute came about

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following the reversal of IRB's deci­ sion on giving TNB a reinvestment allowance.

Tax compliance

IRB initially approved the allowance claim but reversed the decision on the grounds that TNB is not in the business of manufacturing.

Though both parties have agreed to settle the dispute, the case highlights how compliance can be interpreted.

Lim says tax audits and investi-

gations should be approached in an honest manner. Unlike Hollywood movies which show executives shred­ ding documents to destroy evidence, such a move could do more harm as businesses would then have no proof to support their claims.

IRB did not respond to Foc-usM's queries on SMEs' approach towards tax issues at press time.

SMEs which feel the urge to get "creative" with their accounts should be warned that the Ministry of Finance plans to establish a Collection lntelli-

gence Arrangement {CIA) this year to reduce tax evasion.

The CIA will consist of IRB, Royal Malaysian Customs Department and the Companies Commission Malaysia. Data will be shared among these three organisations, making it harder for businesses to falsify their reports.

''If your GST filing shows you generate a high output tax, that means you have a lot of sales. But if figures from your Income Tax Returns Form C do not tally with your GST filing it [IRB] could launch an investigation;' cautions Lim.

Audit remains on the bottom of the to-do list for SMES, says Nurmazilah

Loss­ making compames are able to identify the root cause of the problem, says Zaiton

Headline MediaTitle Date Circulation Section ArticleSize PR Value -	Demystifying audit and tax issues
	Focus Malaysia
	31 Dec 2016	Language Readership Page No Journalist	English
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	News		21,22
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The Royal Maraysian customs Department's armed tactical team, the customs Operational Battle Force Response Assault. would not swoop in on tax defaulters but their investigation unit could knock on your door

The introduction of GST has expedited the accounting process of businesses, explains Lim

Lam says business owners are not keen

to attend budget talks