It is no great news for the Malaysian insurance agency fraternity…. More income tax coming your way! As announced in the 2012 Malaysian Budget, the proposed new Section 83A of the Income Tax Act 1967 requires every company making payments (monetary or otherwise) to its (insurance and takaful) agents to complete a prescribed form (Form CP58 ) which contains particulars of payment(s), and provide it to the agents by 31 March of the following year. However, in view of the many application glitches arising from this new adoption, insurance companies are given up to 31st May 2012 to issue the yearly statement or CP58 to their agents, and agents are given up to 30th June 2012 to submit their tax returns.
The following pointers are important:
- This new Form CP 58 for declaration of insurance agent’s income is to replace the previous CP 32 form and, this takes effect for taxation year 2011 requiring the agent’s insurance principals to declare all benefits that had been given or provided to the agents, whether in monetary or non-monetary forms.
- The information required in the Form CP58 includes:
(i) Insurance principal’s information
(ii) Agent’s information (resident/non-resident)
(iii) Incentive payment information
(a) Monetary form
(b) Non-monetary form
- Notwithstanding the extension of time given to the paying company, recipients (agents) of such payments are required to report the receipt of the payments even though the Form CP58 have not been received from the paying companies.
- Monetary and non-monetary incentives received by the agent are treated as Business Income. The agent is required to declare the incentive received for year 2011 in the Income Tax Form 2011. Concession given effective from 2012 onwards for exclusion of issuance of Form CP58 for agents earning less than RM5,000 (both monetary and non-monetary payment) per annum.
For non-monetary incentive, the amount that needs to be declared should be the same as the actual value or costs or amount spent by the insurance company for the said incentive.
- If the monetary and non-monetary incentives (incentives received by agents based on the performance of services or achievements of sales targets, irrespective of whether the incentives are contractual) are paid to the agents these incentives should be subject to tax even though the values of the incentives may be insignificant.
However, concession is given for the period from 1 January 2011 to 31 December 2011, where companies are not required to issue the prescribed Form CP58 to agents with the condition that the yearly statement provided to them reports both monetary and non-monetary incentive payments.
- Items such as umbrellas, pens or calendars given to all agents that are not related to the performance of services or achievement of sales targets would not be subject to tax. These are treated as promotional expenditure and not income in the hands of the agents thus these need not be reported in the yearly statement or Form CP 58 to agents.
- Costs in respect of providing incentive trips (i.e. Agency Convention) for qualifying agents are subject to full reporting in the CP58 – these are deemed taxable since they are tied to performance of services or achievements of sales targets.
If you (as an agent) are still not able to understand the above, simply imagine most of those incentives or extras that you have had gained from your insurance principals are subject to tax if they are tied or deemed to be closely connected to your business performance.
It is also deemed advisable for the insurance agency fraternity to have representation to commence some form of discussionswith associations tied to the principals as well as engaging the Inland Revenue Board for a clearer understanding of this new tax rulings.