Guidelines on compensation for late refund of overpayment of tax

Updated guidelines on compensation for late refund of overpayment of tax

The IRB has published on its website Operational Guidelines No. 2/2021 (Operational Guidelines) dated 21 May 2021. The Guidelines are in Bahasa Malaysia and are titled “Garis Panduan Pampasan Kerana Kelewatan Memproses Bayaran Balik Lebihan Bayaran Cukai Pendapatan”. This new six-page Operational Guidelines replace the earlier Operational Guidelines No. 1/2014 dated 15 May 2014 (see Tax Alert No. 12/2014).

The new Guidelines are broadly similar to the earlier guidelines and provide clarification on the compensation for overpayment of taxes under Section 111D of the ITA, where taxpayers who file their tax return for a YA by the due date will be eligible for a compensation of 2% per annum on any tax overpaid (to be computed on a daily basis after 90 days from the due date for e-Filing and after 120 days from the due date for manual tax filing).

Some of the key changes are as follows:

(a)   The new Guidelines stipulate that taxpayers who file their tax return for a YA within the grace period provided under the respective years’ Return Form Filing Programme are eligible for the compensation. An example has also been provided in the new Guidelines to demonstrate the methodology of computing the compensation amount in such cases. This was not outlined in the earlier guidelines.

(b)  The criteria for taxpayers who are not eligible to be paid the compensation have been updated to include:

• Cases where assessments have been raised under Sections 90(3), 91, 91A, 92 and 96A of the ITA
• The taxpayer has requested for an extension of time for submission of tax return.
• The overpayment of taxes did not arise from instalment payments remitted pursuant to Sections 107, 107B and 107C of the ITA. An example has been provided to demonstrate this.
• There are taxes or additional taxes to be paid by the taxpayer due to audit findings, within 90 days from the due date for e-Filing or within 120 days from the due date for manual tax filing.

The earlier guidelines provided that taxpayers who do not have instalment payments under Sections 107, 107B and 107C of the ITA, or who fail to remit their instalment payments in accordance to the said Sections, are not eligible for the compensation. This is no longer stipulated in the new Guidelines.

(c)   The earlier guidelines stipulated that in cases where the taxpayer’s refund amount is less than RM100 (for companies) or RM50 (for individuals), an application for the refund will need to be lodged by the taxpayer within a stipulated timeline. Otherwise, the taxpayer will not be eligible for the compensation. This is no longer stipulated in the new Guidelines.