Time flies! It is now March and we are almost halfway towards the corporate-income-tax (CIT) filing due date. It is not surprising that some of us do not feel very comfortable when it comes to preparing and/or reviewing the CIT return. The matters below a
First of all, the simplest yet most important item: Make sure the top line in the CIT computation shows the same net profit as that shown in the audited financial statements.
lNew tax regulations: Be aware of and comply with new tax regulations and utilise new tax privileges where applicable (for example the double deduction for expenses on exhibition fairs, donations to educational institutions and sports organisations).
lTemporary differences of previous years: Some tax adjustments made in previous years’ returns will reverse in the future. If any reversals happened in 2013, make sure that the tax adjustments are made accordingly.
lRecurring tax adjustments: These can be identified from previous CIT returns. If there has been no change, you should expect to see them recur every year. It is also important to compare the amount of the current year’s tax adjustments with the past to ensure their reasonableness. Sometimes a significant movement could indicate that the tax adjustment was not made properly.
Board of Investment: If your company holds a BOI certificate, you should understand the conditions and privileges granted. A classic BOI tax issue is the segregation of income and expenses between the BOI-promoted business and the non-BOI business. If the tax privileges include such items as the additional tax deduction for water, electricity and transportation, ensure that the benefit is fully utilised.
Tax losses: Check the available tax losses that have been brought forward from the previous five accounting periods that are available for deduction this year. An exception to this is the tax losses of BOI businesses where the utilisation period can be extended to be longer than five accounting periods.
Tax rate: The standard CIT rate is now 20 per cent for accounting periods that begin between January 1, 2013, and December 31, 2014.
Tax credits: Check the amounts of the half-year tax paid as well as tax withheld at source. The withholding tax must be supported by certificates that were issued in the year 2013.
Under-submission of half-year tax: Test whether the net profit for the year was underestimated in the half-year tax return by more than 25 per cent of the actual net profit. If yes, the company may be liable to a surcharge of 20 per cent of the amount of tax underpaid. In this case, an analysis should be made to find out the cause of the significant difference so as to check whether or not it would be considered a reasonable excuse acceptable to the Revenue Department.
Uncertain tax issues: Sometimes issues arise because the relevant tax laws are unclear or precedent cases and rulings do not exist. Therefore, the taxpayer must make a judgement as to what position it should take, especially if it is one that may not be acceptable to the Revenue Department. Make sure that you are aware of these issues and have the documentation necessary to support your position.
Analysis of the financial information and tax reconciliation: A review of the consistency of amounts between tax returns is the Revenue Department’s practice to detect any unusual transactions or inappropriate information in the CIT return in order to assess the likelihood that a company may be reporting false or inadequate information, for instance:
lSales amounts reported in the CIT return should be reconcilable with those in the monthly VAT (value-added tax) returns for the year.
lEmployee-benefit amounts reported in the CIT return should be reconcilable with those in the monthly withholding tax on personal income tax returns.If the differences cannot be explained or reconciled, you may be subject to a tax assessment. So don’t wait until the Revenue Department raises the issues, check them yourself first.
The December 31, 2013, year-end CIT filing will be due on May 30, 2014. In the case of filing via the Internet, the due date is extended by eight days to June 7.