Director MTD

How a Director is still liable for Company unpaid Monthly Tax Deductions?

Case Study 1 - Jayapalasingam Kandiah

In the case of Jayapalasingam Kandiah v Kerajaan Malaysia (2022), High Court | 12.09.2022

The sole question is whether the payment of the defendant (director) income tax (taxpayer individual) has to be paid by the former or the taxpayer’s employer.

Fact of the Case

In this case, the taxpayer individual is a director of a Public Listed Company. On 01.06.2020, the taxpayer had submitted his tax return to the LHDN and was assessed to tax of RM65,912.00. The amount was reduced to RM61,742.00 as the taxpayer had paid RM4,170 to LHDN.

The issue was related to the remaining/outstanding taxes of RM61,470.00.

Taxpayer's argument

The taxpayer contended that the amount of taxes of RM61,742.00 should be paid by the taxpayer’s employer.

The taxpayer arguments were that LHDN had issued a CP 38 Form to the taxpayer’s employer to deduct the taxes from the taxpayer’s salary from June 2020 until May 2021. 

However, the fact shows that the taxpayer’s employer has never paid any salary to the taxpayer from June 2020 until May 2021.

Decision

The Court held that in order for the taxpayer’s employer to pay the taxpayer’s taxes under the Income Tax Rules:

  • There must be a CP 38 form issued to the employer to deduct a specific sum each month for a specific duration from the income paid by the employer to the taxpayer;
  • The employer must make the deductions as directed upon receipt of the CP 38; and
  • The amount of tax which an employer is liable to pay under the CP 38 Form is regarded as a debt due from the employer to the Government and shall be recoverable under section 106 of the Income Tax Act 1967

The criteria has not been meet. The taxpayer did not receive any remuneration or income from the month of June 2020 until May 2021 which is the entire duration stated in the CP 38.

The liability of the taxpayer’s employer only arises if the taxpayer was paid the remuneration. If no remuneration is paid by the employer, there is no liability to make monthly deductions from the employer end.

The monthly deductions depend on the remuneration the employer pays the employee.

This is supported under Rule 7 of the ITR which states:

“Upon receipt of a direction under Rule 4, the employer shall deduct in such instalments as may be specified therein from the remuneration which he pays to the employee during the deduction period.”

About the Author

Dylan Chong is the founder of Dylan Chong & Co. He specialises in taxation law and Estate Administration. He represent directors, and company to reduce the tax penalty assessed before the High Court, Court of Appeal and Special Commissioner of Income Tax. He can be contacted via [email protected]

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