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AICPA Principles/Defnition Individual / Corporate Tax (Direct Tax) Sales & Service Tax (Indirect Tax)1.Equity and Fairness .Similarly situated taxpayersshould be taxed similarly.

Economically, all income is taxedDifficult to convince most individuals that investment income

is taxed the same as earned income when only earnedincome is reported on a tax return.

Thus, it will generally not be apparent that horizontal equity isachieved.

The fairness principles also leads to an issue where an extradeduction for interest be allowed for individuals claimingthe standard deduction.

Thus, would equity and fairness be better met by ustincreasing the standard deduction.

Taxable person imposed limited !"nly # groups of services including hotel, restaurant, night club, privateclub, $olf, hospital, insurance, professional services, multimedia andcommunication and many others stipulated in schedule %% of Service Tax

&ct '#(). "ther service provider such as information technology *%T+,trust and property management are tax exempted.Different threshold restaurant and employment agency is at - //,///but services li0e advertising and par0ing is at - ')/,///. 1rofessionalservices li0e management consultancy, legal advices and accountanthave no threshold."nly certain approved industry or licensee can en oy tax inclusivefacilities which of course give a wide difference in term of tax collected.

2. Certainty.The tax rules should clearlyspecify when the tax is to be paid,how it is to be paid, and how theamount to be paid is to bedetermined.

The tax on individual and business is quite clear.This is because where it is difficult or impractical to collect tax

from such person, the &ct provides for the appointment ofagents or representatives to be assessed and charged totax on behalf of such person.

2ut it rises a second issue of level of technology readiness of -alaysian tax practitioners and their usage intentions

towards an electronic filing system.

The taxable schedule is payable for every two months and due date ofpayment is clearly specified. 3owever, there are two different scheduleof payment '+ payable every odd month licensee *ie! tax received for4anuary 5 6ebruary will be paid on -arch+ and 7+ even month licensee*ie! tax received for 6ebruary 5 -arch will be paid on &pril+.

3.Convenience of Payment. & tax should be due at a time or ina manner that is most li0ely to beconvenient for the taxpayer.

The issue that rises in this principle is that whether it is bestto collect the tax from a manufacturer, wholesaler, retaileror customer as well as collection frequency.

Second issue lead to the transfer pricing payment. This isbecause when not carefully managed, can createsignificant ris0s and costs for payments organizations nowand in the future. Example of ris0 is lac0ing of business unitawareness of transfer pricing ris0s and opportunity.

$iven 78 days to declare and pay the tax to -9D offices nationwide.The medium of payment through the normal counter, easy drop counter

and by mail."nline payment has been introduced in early 7/': to promote

convenient of payment.

4. Economy in Collection.The costs to collect a tax should

be 0ept to a minimum for both thegovernment and taxpayers.

&ccording to -uzainah -ansor et,al, 7//)issue whether the present system of indirect tax has

achieved to collect the country;s indirect taxes efficientlyand effectively.wea0nesses of the present system were highlighted by the

reports that the government lost about '(/ million ofindirect tax revenue as of &pril 7//7 and about -'.7billion at the year 7//7 due to poor enforcement.

2esides that % 2 having less issue in collecting the taxes asstated in star online dated &pril, # 7/' . This is because% 2 collects taxes with the cooperation of ' collectionagents including -ayban0, 2an0 a0yat, 9%-2, 1ublic

&ccording to -uzainah -ansor et,al, 7//) it state the issue on presentsystem of indirect tax has not achieved to collect the country;s indirect

taxes efficiently and effectively.wea0nesses of the present system were highlighted by the reports thatthe government lost about '(/ million of indirect tax revenue as of

&pril 7//7 and about -'.7 billion at the year 7//7 due to poorenforcement.

&t average '/// 5 7/// licensee reported failed to declared and paidtheir SST every months

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2an0, 32 and 3S29 as well as 1os -alaysia.

5. Simplicity.The tax law should be simple sothat taxpayers understand therules and can comply with themcorrectly and in a cost=efficientmanner.

The simplicity, certainty and neutrality principles arefrequently challenged at both the 6ederal and Statelevel, as new rules are added to create specialdeductions, exemption and tax credits.

%t is not an easy to include uniformity of new rules andprocedures. 2esides that people need to have

additional record0eeping burdens and they need to0now the basic charitable deduction rules.

two payment bases> '+ collection basis> and 7+ invoice basis. adoptconsistently and cant mix any of the selected bases. Secondly, whenpayment is due ! pay upfront any uncollected amount within '7 monthsfrom the invoice date.

licensee has to clearly segregate between the taxable and non=taxableservice in the invoices. ?ot only that, the complexities of businesschain ma0e it difficult for licensee on how to charge and collect the taxand who is the final licensee to pay the tax in the event of oint=licenseeinvolved in particular business chain which is commonly practicenowadays.

6or example, in a consortium construction pro ect involved differentlicensees it will create confusion as to whether they have to pay the taxseparately or payable by the main contractor. The current practiceaccept both type of declaration which create confusion andunstandardized declaration issues. &lso, it creates complexities for the

-9D auditor to audit and cross chec0 the tax compliance amonglicensee especially big companies.

6. eutrality.

The effect of the tax law on ataxpayer;s decisions as to how tocarry out a particular transactionor whether to engage in atransaction should be 0ept to aminimum.

The issues in neutrality come in place as it affect a person;s

decision as to how to spend, with an added incentive todonate to a charitable organization.

Second issues in neutrality are in e=commerce business.Difficult to trace individual who running online businessthru permanent establishment issue 5 avoid sales tax

The service tax system has so far contradicted with several guidelineprinciples of fairness and equity, certainty, economy of collection andsimplicity. Thus, this tax system does not meet the neutrality criteria asit give confusion and also leads to more tax evasion among licensee.

!. Economic "ro#t$ andEfficiency. The multiplier effect on indirecttax system is hardly to bedetermined.

%n -alaysia the effect on the economy is difficult to measure,because some of the donated funds would otherwisehave been spent for other purposes.

Second issue is that many people believe that the internet isgrowing regardless of current tax rules.

Thus today, online purchases are sub ect to sales and usebut however the states ability to collect use tax on remoteonline sales is quite low.

Exemption on that business in free trade zone li0e @ang0awi, @abuan,Tioman and the 4oint Development &rea

Exemption facility for sales tax> raw materials for export and governmentused

To attract foreign direct investment and retain those multinational

companies *-?9+ to spur economy growth and efficiency in -alaysia.

%. &ransparency and 'isi(ility. Taxpayers should 0now that a taxexists and how and when it isimposed upon them and others.

The transparency and visibility issues occur becauseconsumers may not 0now that sales tax exists inonline purchases and they believe the sale is exempt.Thus in reality consumer li0ely needs to self=accessuse tax.

Tax ruling and relevant act deemed as not transparent and visible to thepublic as the proper treatment and specific guidelines is absent even inthe -9D website.

The licensee has to come over the counter to get all the information andnormally is lac0ing the blac0 and white answer.

Depending on the competency of the officer consultancy which maybevaries among them

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2esides that it raises the issue of difficulty of tax payer tounderstand the indirect taxes. This is because an indirect taxmay increase the price of a good so that consumers are actuallypaying the tax by paying more for the products.

The degree to which the burden of a tax is shifted determineswhether a tax is primarily direct or primarily indirect .

). *inimum &a+ "ap. & tax should be structured to

minimize noncompliance.

%n the implementation of $ST, A1-$ -alaysia reported saidthat it is not ust a tax issue, it is a whole of the business

issue. This is because no one will be exempt from $STregime, from multinational companies to small andmedium business owners, therefore the businesscommunity must start to plan and manage this taxtransition.

Second issue is that business not only pay attention toachieving compliance with the $ST law and regulationsbut it also important to consider whether there are anyopportunities that should be engage. 6or example the ris0management of $ST issue must be part of theorganization;s ris0 management process

ohaya -d ?oor *7/' + using sample data comprised of 7() taxableservice providers sub ected to tax audit during the years 7//# to 7/''.

Tax gap exist in the service industry thus its shows that there is asignificant difference between declared service tax and actual servicetax value . %t was found that there are four factors which can beassociated with service tax evasion! '+ Service providers which aresub ected to the threshold limit> 7+ The smaller size of serviceproviders> + Service providers that engaged smaller sized audit firms>and :+ Service providers which do not submit the required tax returnforms.

1,. -ppropriate "overnmentevenues.

The tax system should enable thegovernment to determine howmuch tax revenue will li0ely becollected and when.

9orporate income tax is an important source of governmentrevenue.

6irst issues of revenue growth generally slow duringrecessions and accelerates during expansions. This isbecause countries that depend heavily on taxation ofnatural resources such as oil or minerals are especiallyvulnerable to cyclical swings, with wide swings incommodity prices changing the level of tax revenues.

Second issue here is that whether foreign direct investmenttends to enhance economic growth more efficiently whena recipient country has a well=developed and well=functioning financial sector.

This is because the

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-ost -?9 want to en oy the incentives rather than longterm business sustainability. uic0ly switch strategy toother developing countries who offer better tax incentives

9reate imbalance among industry because certain industryhave to pay more than the other

9orporate tax should be reducing further as Singaporealready capped at '( . -ore attractive for businessesthan -alaysia

Simplified the multi=tier calculation for individual tax incomeand if possible capped at one std tax rate rather thanmulti=range of tax rate.

$overnment debt capped below )) of $D1, fiscal deficit would declineto .

&s $ST in -alaysia would replace the existing Sales and Service Tax,any inflationary element is not expected to be significant. &t theoriginally proposed $ST rate of : = F , prices are not expected toincrease significantly and, for certain goods, e.g. beer, prices areexpected to decrease.

%n the 7/' 2udget the -alaysian 1rime -inister announced a 'reduction in income tax rates for individuals in the lower bands from7) to 7: in 7/'). The reduction of income tax rates was given inanticipation of the imminent transition from Gthe current tax system to atax system that is fairerH.