Lately, the medical doctors are bewildered by the issue of whether the use of Sdn Bhd as a business vehicle is legitimate for the purpose of income tax declaration.
There is no definite answer as the operation of medical doctors varies in circumstances, changes in scenario. Study and analysis have to be done. A simple guideline to determine its legitimacy has been established as shown below.
Scenario 1:
Medical doctor enters into contract for service with hospital and operates the business as a sole proprietor.
» Legitimate
Scenario 2:
Medical doctor enters into contract for service with hospital and operates the business as a Sdn Bhd. And this Sdn Bhd has been registered with the Private Healthcare Facilities and Services Act 1998. The responsibilities of the contract are assigned to the Sdn Bhd, but the obligations and liabilities still remain on the individual doctor. Contract fees go to Sdn Bhd.
» Legitimate
Scenario 3:
Medical doctor enters into contract for service with hospital but then operates the business as a Sdn Bhd. The Sdn Bhd is not registered with the Private Healthcare Facilities and Services Act 1998.
No responsibilities of the contract assigned to the Sdn Bhd by the medical doctor, but the contract fees go to the Sdn Bhd.
» Not legitimate
The crux of the issue is when the third scenario is in place.
To solve the issue, medical doctors may ensure the existence of the below clauses in the contract for service with hospital. They provide strong justification for the legitimacy of Sdn Bhd.
Clause 1:
It is expressly provided the sole and only purpose of the contract is to account for negligence and liabilities.
Clause 2:
Both doctor and hospital mutually agreed the payment and operation of the contract carrying out with Sdn Bhd.
Even without these clauses, it does not mean faded. The purpose of the contract and the intention of the parties have to be examined and analysed. Oral evidence can be collected. Examination of the witness and credibility of the witness would be able to prove that the intention of both parties remain valid, too.
Further, a contract does not denote income recognition.
The most crucial and essential determination factor is the accounting presentation (accounting treatments and coding). The accounting presentation may be general in nature, but if it is done by an accounts keeping preparer who is highly specialized and super technical, it could essentially explain and justify the business intention.
To emphasise, the accounts keeping preparer must be equipped with adequate knowledge, skills and experience.
Remedy consideration
Anyhow, the Inland Revenue Board of Malaysia (IRB) has the statutory right under Section 91 of the Income Tax Act 1967 to issue notice of additional assessment via Form JA. It can raise additional tax to be paid for the pass 5 years of assessment. Penalties involved would be 45 to 100 percent (Section113 of the Income Tax Act 1967).
Doctors, on another hand, can have their own remedies by engaging tax personnel to file in Form Q not later than 30 days from the date of the notice of assessment. And then appeal to IRB for reconsideration and go to the Special Commissioners of Income Tax for adjudication. The tax personnel must assemble the facts and present one more time to IRB.
While this process is carrying on, the tax and penalties are still needed to pay on time. Thus, an option here is to appeal for instalment of payment from six to 60 months.
Whether there exists incorrect return, warranted for incorrect return penalty
For this issue, doctors are innocent parties, relying on auditors that subscribe the validity of Sdn Bhd to carry on business. Auditors are regulated by the Malaysian Institute of Accountants (MIA) as the top professional and have been consistently issuing audited report for the medical industry for 10 to 30 years.
Moreover, the tax agent or its professional is in no circumstances to submit an incorrect return. Indeed, some hospitals, too, are paying fees to Sdn Bhd.
What is more, in the Goods and Services Tax (GST) era, the Royal Malaysian Customs Department (RMCD) being the revenue collection agency of the government accepted in its totality allowing Sdn Bhd to register for GST collection and this leads to an irresistible conclusion that the Sdn Bhd is legitimate in the medical industry.
Lastly, IRB has accepted the incorporation of Sdn Bhd for 10 to 30 years, and cannot now turn otherwise, holding that the doctor submitted an incorrect return which is not tenable in law.
Conclusion
Doctors play no part in setting up the scheme, and thus the issuance of penalties seem to be prejudicial to doctors. It is now paramount for the community of doctors to engage in appeals to seek the waiver of penalty and continue using Sdn Bhd to carry on its medical business.
Again, doctors have no way submitting incorrect return as the auditors, tax agents, hospital, IRB and RMCD have played their own professional and significant roles for the past 10 to 30 years. The long passage of time should be good appealing factor for IRB not to impose penalties.
CHOONG HUI YAN is a tax specialist with Simways Formulation, a firm specialising in providing accounting, GST and tax services. He is also an expert to assist in appeals.
