What to Know About the Tax Penalties in Malaysia
The income tax in Malaysia is based on the income that is accrued in or comes from Malaysia. The only exception is from a resident company’s income that carries business of transport by sea or air, insurance, or banking, which can be assessed based on a world income scope.
The income that can be attributed to business in Malaysia is also deemed as coming from Malaysia.
Keep in mind that your taxes are assessed every year, and filing your tax return should be a regular practice. You could be charged for tax evasion even if that was not your intention.
You need to know what the tax penalties in Malaysia are so you can avoid them and have peace of mind.
About the Tax Penalties in Malaysia
You will be assessed yearly. The year of assessment (YA) coincides with the calendar year. For instance, the YA 2020 ends on December 31, 2020. The company’s basis period, trust body, or co-operative is the financial year (FY) that ends in that order. For the accounts on June 30, 2020, the FY ends June 2020. ThEveryone’scome in the company, limited liability partnership, trust body, or co-operative gets assessed every calendar year.
Malaysia applies a self-assessment system, which means determining the right tax to be paid is the taxpayer’s responsibility.
Assessments and Returns
- The taxpayers should submit their returns on income tax. It should be given to the Inland Revenue Board (IRB) within the timeframe.
- The tax return thou submit on the due date is an assessment made on the taxpayer’s submission date.
- The IRB may issue another assessment if it thinks that there is no sufficient original assessment. This assessment can be issued only within five years from the YA end.
- The time frame does not apply to situations of fraud, negligence, or willful default.
What are the Consequences?
In case the taxpayer did not pay for the first time, the person should pay the penalty if they are audited. The IRB tax examination of business accounts and financial information ascertained the tax report and paid correctly, to comply with the regulations and tax laws.
There are two kinds of audits that the IRB does – the desk audit and the field audit. The desk audits take care of straightforward issues or any tax adjustments. These are easily dealt with through correspondence, and a field audit is about checking the taxpayer’s business and their non-business records.
Taxpayers are subject to offences, like not making the right returns by removing or understating the required income. They can also be fined for giving incorrect information about any matter that affects chargeability.
In case the individual is guilty of committing this offence, they are liable to pay at least RM1,000 fine but not more than RM10,000. It should pay a penalty of double the tax amount that has been undercharged.
In addition, if no prosecution is instituted due to incorrect return or information, the DG in the IRB might impose a penalty that is equal to the tax amount that was undercharged.
Some Tax Penalties in Malaysia You May Not Be Aware of
The following are some tax penalties depending on the offence committed.
- Failing to furnish income tax return – RM200 to RM20,000 and/or imprisonment. It could also be 300% of the payable tax
- Failing to furnish at least 2 YAs of ITR – RM1,000 to RM20,000 and/or imprisonment. It could also be 300% of the payable tax
- Willfully evading tax or helping someone else do it – RM1,000 to RM20,000 and/or imprisonment and 300% of undercharged tax
- Trying to leave the country without paying tax – RM200 to RM20,000 and/or imprisonment
- Late payment of tax during an assessment for YA – 10% of the tax payable and another 5% on unpaid tax and outstanding penalty that was not paid after 60 days
- Tax installment late payment – 10% of the installment amount tax
- Underestimating tax estimate for the YA by at least 30% of the actual payable tax – 10% of the difference that exceeds 30% of the payable tax
- Not furnishing country-by-country report (CbCR) – RM20,000 to RM100,000 and/or imprisonment
- Giving incorrect return on the CbCR Mutual Administrative Assistance Arrangement – RM20,000 to RM100,000 and/or imprisonment
How Taxpayers Can Make Sure They Stay on Top of their Taxes
- Income, liabilities, and assets listed for 7 years to prepare the net wealth analysis and statements for the capital
- They should reconcile their income and expenses
- Reconciliation and controls of cash sales
- Documents needed to support land transactions and capital transactions
- Transfer the pricing documentation to support the important party transactions
- GST details listing, invoices of sales and purchases, GST return forms and reconciliations should be in place as preparation for GST audit
- Confirmation letter of customs for specific transactions
- SST that is kept updated with the law changes
Many businesses face challenges now, so it is best always to be vigilant and stay updated about the latest law changes. This is to make sure that your business has full compliance and avoid having to pay penalties. Aside from that, with the uncertainties of the present times, it is better always to be prepared.
The taxation services of 3E Accounting will make sure you stay on top of your taxes and never miss paying them. Their accountants are all certified and experienced in this field so that you can focus on other things. You can contact them today for the best tax planning services in Malaysia.