What is the compensation for late refund of overpayment of tax?

{Tax Update} Compensation of Late Tax Refund 2%

2% Compensation

Recently many taxpayers received an email from IRB on the approval of a 2% compensation payment for delayed refund of overpaid income tax. The payment, processed by an approved bank in Malaysia, follows a formula under subsection 111D(2) of the Income Tax Act 1967.

It also includes a legal disclaimer indicating that the Director-General of Inland Revenue retains the right to recover the payment if it's found to have been made erroneously or based on the taxpayer's incorrect information.

Operational Guideline Updates: Compensation on Late Refund of Overpayment of Tax

Updated on 21 May 2021 from IRB, this guideline is to clarify payment of compensation for late refund of overpayment of tax made by IRB. under Section 111D of the Income Tax Act 1967 (ITA).

What are the criteria for compensation?

It's imperative to submit the income tax return form accurately and comprehensively by the specified deadline, or within any extended timeframe granted by the Inland Revenue Board (IRB).

The deadlines are as follows:

Individuals with employment income: Submission is required by April 30th.
Individuals with business income: The deadline is set for June 30th.
Companies, Limited Liability Partnerships, and Societies: Submissions should be made within seven months following the day after the business's accounting period concludes.

Type of tax payment eligible for tax refund

Only the following type of payment will get a tax refund:

PCB: Monthly tax deduction
CP500: Installment Payment Notice
CP204/CP205: Estimated Tax Payable by Companies/Limited Liability Partnership/Society

Timelines of calculation of compensation

The compensation is calculated on a daily basis, starting from the first day after the period stated below:

via E-filling: After 90 days from the submission deadline
via post/courier: After 120 days from the submission deadline

How to calculate?

Compensation of 2% shall be paid in accordance with the following formula:

𝑻𝒂𝒙 𝒓𝒆𝒇𝒖𝒏𝒅 ×𝑻𝒐𝒕𝒂𝒍 𝒏𝒐.𝒐𝒇 𝒅𝒂𝒚𝒔 𝒍𝒂𝒕𝒆 𝟑𝟔𝟓/𝟑𝟔𝟔 𝒅𝒂𝒚𝒔 × 2%

Taxpayers who are not eligible to be paid compensation

Tax returns submitted after the due date in accordance with the ITA.
Tax set off under Section 110 of the ITA is in excess of tax payable.
Assessment raised by IRB under Sections 90(3), 91, 91A, 92 and 96A of the ITA.
The taxpayer applied for an extension of time for the submission of the tax return.
There's an appeal against the assessment.
There is an additional tax payable from IRB audit during the 90 or 120 days from the submission deadline.
The excess tax paid is not from installment payments under Sections 107, 107B and 107C of the ITA.

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