To Our Valued Clients
Currently, every company is required to furnish a Statement of Monetary and Non-monetary Incentive Payment to an Agent, Dealer or Distributor ["Form CP58"] to the agent, dealer or distributor who receives payment (both monetary and non-monetary) from the company arising from sales, transactions or schemes carried out by him as an agent, dealer or distributor each year pursuant to Section 83A of the Income Tax Act 1967 ["ITA 1967"].
There is no requirement for the company to deduct tax from the above payment made to the agent, dealer or distributor.
As you may be aware, in the Budget 2022 / Finance Bill 2021, a new withholding tax ["WT"] provision under Section 107D of the ITA 1967 has been introduced to provide for the requirement for the payer company to deduct tax from such payments made to the agent, dealer or distributor, effective 1st January 2022.
For your update, we are pleased to provide below further details on the above proposed legislation:-
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WT Requirement on Payments Made to an Agent, Dealer or Distributor Who is a Resident Individual |
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The proposed new Section 107D of the ITA 1967 provides that where a company [hereinafter referred to as "the company" or "the payer"] is liable to make payments in monetary form to an agent, dealer or distributor who is a resident individual arising from sales, transactions or schemes carried out by that agent, dealer, or distributor, the payer shall upon paying or crediting such payments deduct tax at the rate of 2% on the gross amount, effective 1st January 2022. |
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The tax deducted is to be remitted to the Director General of Inland Revenue ["DGIR"] within 30 days from the date of payment or crediting such payments to the agent, dealer or distributor. |
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| ii. |
Applicability of WT on Payments Made to the Agent, Dealer or Distributor |
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The 2% WT mentioned above will apply if the total sum of payments (whether in monetary form or otherwise) received by the agent, dealer or distributor from the payer in the immediately preceding basis year arising from sales, transactions or schemes carried out by that agent, dealer or distributor exceeds RM100,000. |
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| iii. |
Consequences for Non-compliance with WT by the Payer |
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A penalty of 10% will be imposed on the WT due if the payer fails to deduct and remit the WT to the DGIR within the stipulated period. |
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In addition, effective year of assessment 2022, the company will not be allowed to claim for deduction of the payment made to the agent, dealer or distributor in arriving at its adjusted income unless it makes good the following:- |
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the payment of WT that should have been paid; and |
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the penalty of 10% on the WT due. |
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Notwithstanding the above, the company is still liable to pay the WT plus the penalty as a debt due to the Government. |
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Further, the DGIR is also empowered to impose a penalty for incorrect return under Section 113(2) of the ITA 1967 if a claim for tax deduction on the payment to the agent, dealer or distributor is made but the WT plus penalty that relates to such claim are not paid by the due date for submission of the tax return. |
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| iv. |
Tax Withheld for Set-off Against Tax Payable by the Agent, Dealer or Distributor |
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The 2% WT deducted and remitted to the DGIR by the payer on the account of the agent, dealer or distributor can be used to set-off the tax payable for the relevant year of assessment by that agent, dealer or distributor. |
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Further details would likely be provided by the Inland Revenue Board on the procedure for remittance of WT by the payer and the mechanism for set-off of tax payable by the agent, dealer or distributor.
For further information on Budget 2022, please refer to our Tax Flash - November 2021 (Special Edition) issue.
Please do not hesitate to contact us if you need any clarification on the foregoing.