Assert your rights to claim overpaid tax

Tax Insights - By Kang Beng Hoe

A recent article in StarBiz dealt with the poor take-up rate of rights issues made by a number of companies. Among the reasons alluded to was the reluctance of investors to part with their cash.

This is not surprising as in an economic crunch (and there has never been a crisis like the one we are facing now), people, both ordinary and those in business, either do not have cash, are running short of cash or are fearful of spending what they have.

The term “cash is king” has not had a truer ring. The conventional source of funding, like banks, has effectively become moribund in the United States and Britain, being unable or unwilling to lend despite massive infusion of taxpayers’ money.

While Malaysian banks are clearly not in the same league, there appears to be anecdotal evidence that there exists here a general reluctance towards broad-based lending.

It may seem extraordinary to many if one suggested exploring an unlikely source of cash funding, for example the tax authority. Indeed, getting a tax refund is not as far-fetched as it may seem.

How many of us can claim to being diligent enough to say that we have not mislaid or forgotten the all-important voucher or receipt whether for books, donations or medical expenses, etc., which if submitted now could give rise to a tax refund?

Taxpayers should recognise that getting back overpaid tax is a right protected by law and they should have no qualms in pursuing a tax refund where one is due

The speaker’s fee paid to you when you spoke at an event in Singapore could well be tax-free but did you mistakenly report it and paid tax on it? Did you inadvertently treat the bond interest as taxable when it might not have been?

That dividend voucher omitted from your tax return would provide tax money back if your marginal tax rate is less than the company tax rate. Such oversight means that your tax bill is more than what it should have been.

The framers of our tax law appear to recognise human frailty that we do make mistakes and can be forgetful.

There is a provision in the tax law to permit you to make corrections to your tax return by filing an “error or mistake” claim.

The error or mistake can be one of omission or commission. So you have the law on your side and you will find that the tax authority will readily accept a valid claim.

Mistakes relating to interpretations of tax provisions are more difficult to get accepted especially if they accord with the general practice adopted by the tax authority at the time the mistake was made.

There is a time limit though. You have to file the error or mistake claim within six years from the year of assessment in which the error occurred.

For those in business, the same parameters apply although it is fair to say that the occurrence of such errors should be the exception in a properly managed organisation although a lack of understanding of complex, and, sometimes quirky provisions in the tax law, does create these exceptions.

The more common and straightforward situation when you can claim a tax refund is when you have had too much deducted from your monthly salary.

Generally, the time to determine the amount you have overpaid is when you file your tax return.

Unless one’s tax affairs are complex, most of us should be able to “self-assess” by following closely the instructions in the official tax return form.

Matching the tax due from you with the tax deducted by your employer will provide you with the refund amount.

Retirees with dividend income with tax deducted at the source would be entitled to tax refunds when their marginal tax rates are less than the corporate tax rate, which is now 25%.

Others who have substantial dividend income from investments financed by bank borrowings can deduct the bank interest against the dividends, giving rise to a possible refund.

You are likely to get a tax refund if you stop working and say, went back to study.

Unfortunately, the prospect of retrenchment is more real now than ever and getting tax refunds in such situations is something employers should assist their affected employees with.

The underlying principle is that one should not pay more tax than what is due under the law. The tax authority should be the first to agree with this. In practice though, the process of refunding taxpayers involves administrative procedures, which can be protracted and taxpayers may view such claims as problematic.

Despite this, taxpayers should recognise that getting back overpaid tax is a right protected by law and they should have no qualms in pursuing a tax refund where one is due.

Kang Beng Hoe is executive director of Taxand Malaysia Sdn Bhd. Readers’ feedback to this article is welcome. Please e-mail to starbiz@thestar.com.my