Authors: Jean Loi , Ngwe Lin Myat Chit
The Law Amending the Income Tax Law 2016 (“the Amended Law”) was enacted on 31 August 2016 and is effective for the current 2016-2017 income year. It clarifies certain points of confusion, reflects the restructuring of the Internal Revenue Department (“IRD”) and changes to the tax system that have occurred over the past year, and updates some of the tax rules. We provide details below of the following important points to note:
Restructuring of the IRD/Ministry
To reflect the restructuring of the IRD, the Company Circle Tax Office has now officially been renamed the Medium Taxpayers’ Office under the Amended Law. The Ministry of Finance has been renamed the Ministry of Planning and Finance to align with the restructuring of the government ministries. Under the Amended Law, the IRD has been given the power to make rules with the approval of the Ministry.
Clarification of tax benefits
The Amended Law clarifies the available tax benefits. It states that apart from the tax incentives mentioned under the Investment Law, Special Economic Zone Law, and the Law relating to the United Nations and Diplomats, the only tax benefits applicable are those specified under the Union Tax Law and Income Tax Law.
Furthermore, if there is a conflict between the Income Tax Law and a Double Taxation Agreement (“DTA”) with regard to tax benefits, the provisions under the DTA will take precedence.
Self-assessment is mentioned as one of the tax assessment methods.
Taxpayers who fail to pay their tax due, including self-assessed taxpayers, will be considered to be in default for the tax and subject to the applicable penalties.
The income category “property” has been changed to “rental fees from property”, specifying clearly the type of income that is subject to income tax.
The Amended Law increases the already hefty penalty imposed on concealed income from 50% to 100% of the tax due.
With the improvement of technology, the IRD’s inspection process now includes the taking of photos and video of the business’s operations, in addition to stamping documents they have reviewed, and taking extracts of accounts and documents.
In addition, notices and summonses issued by the IRD, and taxpayers’ replies to such notices or summonses can now be sent electronically.
Corporate income tax
Additional non-deductible expenses
The list of expenses not allowed for deduction when calculating corporate income tax (“CIT”) has been expanded to include inappropriate expenses (note that there is no explanation as to what constitutes an “inappropriate” expense), and expenses incurred for purposes other than earning business income.
CIT filing changes
Good news for taxpayers is that the Amended Law extends the deadline for making quarterly CIT payments to 10 days after the end of each quarter. Thus, now the final CIT payment can be made after the financial year-end, allowing taxpayers a bit more leeway to estimate and calculate the applicable CIT.
Another change is that now all companies (including associations, except for religious and charitable associations) are required to lodge an annual CIT return by 30 June, even if they don’t have any taxable income.
Personal income tax
Exemptions for pensions and gratuities
Income from pensions and gratuities are now exempt from PIT. Although other fees and commissions received in lieu of or in addition to salary or wages are taxable under PIT, the definition of salary and wages has been amended to include the term bonuses and awards, providing clearer instructions to taxpayers.
Clarification of PIT reliefs and allowances
The Amended Law clarifies that the personal income tax (“PIT”) reliefs and allowances accorded to resident taxpayers for their spouses, children and/or parents are only for those living with them.
Separate assessments of different types of income
Previously, income from salaries, property, professional services, businesses and other sources were added together and a tax assessment made on the total aggregate income. Under the Amended Law, separate assessments will be made; i.e., a tax assessment will be made on the aggregate income from professional services, businesses and other sources via a CIT return, a separate tax assessment for salaries (via the PIT return), and for property rental fees.
Offsets of overpaid tax are now allowed
Under the previous law, if there was any overpayment of tax, only refunds were allowed (although in practice, the IRD has at times allowed companies to offset their overpaid tax against their future tax liabilities). The offset is now officially included under the Amended Law.