KUALA LUMPUR, Dec 21 ― Paying taxes is part of every business, regardless of its size and nature.
Although paying taxes is inevitable, entrepreneurs can use proper tax preparation and treatment techniques to avoid forking out unnecessary sums for their year-end tax payable.
To better understand the importance of tax planning, Malay Mail asked YYC Group Tax Practice Leader Zen Chow Tuck Him to highlight ways that would diminish tax burden and help entrepreneurs end each financial year with more profit after tax.
Here are some common questions most entrepreneurs as well as small and medium enterprises (SMEs) may have in mind:
1. What is tax planning and why is it important to SMEs in Malaysia?
Many people misunderstand what tax planning is all about.
They always think that tax planning is about avoiding tax, which obviously isn’t the case.
Tax planning is actually understanding the tax treatment of all the transactions, and eventually identifying the available tax deductions for your business.
This is because if you understand the tax treatment, you will then better identify the transactions that would give you maximum tax savings.
Simply put, tax planning helps you to pay the most efficient tax and not to avoid tax.
2. Many SMEs may not prioritise tax planning from the start mainly due to the size of the business and transactions. Why do you think businesses should start tax planning from day one of operations?
I totally agree.
Many SMEs neglect tax planning from the very first day of operations because they always think they don’t have the resources for it.
In reality, doing tax planning from day one of operations is extremely important because if you do not do tax planning from the start, you will face many bumpy roads at the financial year end when you have closed your accounts.
That’s because it will be too late to do any planning as transactions have been incurred and concluded, leaving you with no room to make any changes.
Therefore, it is vital to start tax planning at an early stage and decide the best tax treatment and available deductions to maximise your tax savings.
3. What can often go wrong for SMEs who neglect tax planning, especially during the year-end audit?
Most SMEs that neglect tax planning from the start of their financial year are often left behind to take advantage of the available tax deductions and end up paying unnecessary tax.
That’s mainly because when one decides to just start the tax planning at the year-end audit, the accounts have already been closed and no adjustments can be done by then.
All that can be done after accounts are concluded, is to look for expenses that are deductible, which are often not advantageous.
4. What are the differences between an accountant and a tax agent?
An accountant is actually someone that helps you to keep track of your transactions and enter them into the accounting system.
A tax agent, on the other hand, is someone that takes care of your tax treatment.
An accountant may not be tax-savvy and be as well-versed as tax agents when it comes to tax treatment, an agent would only usually do tax filing and computations after the end of the financial year, which would already be too late to change anything.
The most ideal option for SMEs would be to have an accountant that is tax-savvy to be able to plan your tax treatment ahead, even before you enter your transactions into the accounting system.
5. Since you are an entrepreneur and a taxpayer yourself, how can strategic tax planning benefit SMEs in the long run?
There is no doubt that most entrepreneurs wish to run their businesses well, make high revenue and, of course, don’t pay for unnecessary tax.
That’s the reason all entrepreneurs need to have strategic tax planning to help them save their hard-earned money.
Those who fail to have deliberate tax planning for their business may end up having much lower profit after tax.
6. What are the common mistakes made by SMEs when it comes to tax planning?
The most common mistake that I always see SMEs make is that they wrongly assume they are doing tax planning.
Most SMEs often try to minimise their tax payable, but in actual fact they are unaware of the correct tax treatment and end up following wrong tax deduction tactics.
To make matters worse, if entrepreneurs who have taken the wrong tax deduction route get caught by the Inland Revenue Board, they may have to bear heavy penalties for their wrong deeds.
To avoid such blunders, SMEs must first identify the right tax treatment to determine the available tax deductions before they enter into a transaction.
Once that’s clear, they can minimise the tax payable and carry out strategic tax planning for their business.
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