Due to the penetration of technology and internet growth, the way of operating businesses has developed a new pattern. These days, everything goes online as it is faster, easier, and way more efficient than recording down physically. Therefore, it prompts businesses to move partially online or go fully online, which results in the immense increasement of e-commerce players. As the booming in the number of e-commerce players, it is predicted by many parties that the government is now likely to focus more on tailoring the rules and regulation on e-commerce tax as tax is a vast portion for the government’s revenue.
With the extensive growth of the e-commerce players, there are only a very inadequate amount of e-commerce players who notice the importance of doing accounting and paying for tax. As in fact, paying tax is one of the obligations of a responsible citizen. Moreover, business owner and website owner who fails to pay the income tax is likely to be seen as an individual who intends to evade tax. For further illustration, the penalty of tax evasion can cost between RM 1,000 and RM 20,000 or imprisonment or both and 300% of tax undercharged under the provision Income Tax Act 1967.
Challenges that E-Commerce Players Face
In practical, the rules and regulations regarding E-Commerce are not fully developed, and there are indeed numerous loopholes in the existing laws. Remarkably, the accounting and tax-related aspects. Some e-commerce players stated that the current tax laws are mainly designed for conventional commerce; and, even there are laws for e-commerce, it is rather limited. And, under the vague restriction of tax rules, e-commerce players face different challenges which make the entire accounting and tax reporting process more intricate. Herewith a few listed challenges:
- Diverse transaction volumes distract accounting system: Too many payment gateways make the accounting system messier; hence, e-commerce players can find accounting and tax reporting troublesome, and clueless of where to start the process.
- Returns of payments: Unsuccessful transaction causes the return of payments. And, these uncertain figures can complicate the accounting process.
- Oversea transaction: As the usage of the internet increases widely, customers can now purchase things they like online simply, including buying items overseas. Nonetheless, it makes accounting and tax reporting more complicated for e-commerce players.
The challenges mentioned above become reasons that e-commerce players are reluctant to proceed with the entire accounting and tax reporting procedure. However, every business owner and website owner must have an income tax file number for compliance and legacy purpose.
Our Suggestions to E-Commerce Players
Here are some suggestions of ours for the e-commerce players to prevent the occurrence of any uncertainties.
Incorporation: We will strongly suggest e-commerce player to consider the incorporation. Below we have listed down 2 main reasons why an e-commerce player should take “incorporation” into consideration:
|Sole Trader||Private Limited (Sdn Bhd)|
|Risk||High as the liability is not separated. *||Low as there is separate legal entity. *|
Example of high risk for sole trader: It means that if the business owner will have unlimited liabilities if the business has many liabilities.
Example of low risk for private limited: It means that if the business owner set up private limited company, he/she will have limited liabilities even after the business wind up with a large amount of liabilities.
Accounting preparation: Accounting is a critical management dimension for an owner of a business to carry out. It allows the owner to evaluate the business’s financial performance and also serves the purpose of recording transactions. Moreover, reporting tax requires accounting records.
In this narration, we will suggest e-commerce players to start with accounting preparation not only for the purpose of improving internal process, but also for the preparation of tax planning.
Taxation preparation: It is compulsory for an individual with income to pay for taxes. If one fails to pay, it is equals to violating the tax laws, and will need to face penalties accordingly.
Hence, we will suggest e-commerce players to look for tax consultancy and start preparing for tax planning. Prepare yourself and be compliant to tax laws are the best option to ensure your business to move further and steadier.
Working as an individual is required to pay more taxes. Hence, we recommend any e-commerce players who wish to expand their business to incorporate as the tax payable rate is lower for corporation than individual. Moreover, setting up a private limited company allows the owners to obtain separate legal entity with the company. It is a way of risk management for the business owner to consider. For further illustration, it means that the business owner will have limited liabilities even after the business wind up with a large amount of liabilities.
And now, the requirement for incorporation is eased. Grab the chance now to know more about it!
E-commerce players contact us now!
Cheng & Co provides professional services in accounting and taxation. We have an experienced team here to counter your problems or prepare you for future arrangement.
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