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IRD warns independent service providers against tax evasion
View(s):By S. Rubatheesan
The Inland Revenue Department has cautioned professionals who derive sources of income as Independent Service Providers (ISPs) to adhere to revised tax regulations imposed on January 1.
This follows revelations of tax evasions of unreported income under Advance Personal Income Tax (APIT) which came to effect in January.
Issuing an explanatory note on the application of APIT, the department clarified that a particular income should be investigated to determine whether it falls within the category of “employment income” or “business income”.
Under the amended Act No 45 of the Inland Revenue Act, only doctors, engineers, accountants, lawyers, software developers, researchers and academics are considered as ISPs.
“After new tax schemes were introduced, we noticed that many such ISPs prefer to provide their services not as employees under binding contracts subjected to APIT but rather to remain loose as independent workers, failing to declare their actual income,” a senior tax official told the Sunday Times.Warning employers and withholding agents to adhere to tax regulations, the department said additional tax liability would be placed with interest and penalty on both employer and employee who failed to pay APIT as required by the Act.
The reason, the official explained that as ISPs, they were only subjected to a five percent Withholding Tax (WHT) on service fee payments whereas as high-income earning individuals they are required to pay tax if their declared annual income as direct employees exceeds Rs 1.2 million.
“If an employee has resigned or retired from the employment and reaccepted the same job or work with or without certain employment rights such as contribution to Employees’ Provident Fund (EPF), and Employees’ Trust Fund (ETF), gratuity, pension, statutory payment, health insurance or no pay leave, such reacceptance should be still considered as an employment contract for the purpose of income tax,” the new circular said.
For example, if a visiting lecturer was given an appointment for postgraduate and other faculty duties by the same employer in addition to being appointed as a ‘visiting lecturer’, then he or she has only one employment contract and all gains and profit from such employment should be considered to deduct APIT.
If the visiting lecturers’ appointments are given by different employers, then the APIT should be deducted based on the primary employment declaration or secondary employment, the circular clarified.
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