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Tax Investigation in Malaysia

Just like many other countries, Malaysia does have tax investigation. Tax investigation involves the inspection of the business of the taxpayer as well as individual books. Usually begins with an unexpected visit to the taxpayer’s business premises (it could also be the personal residences, agent/representatives and various third parties’ premises), tax investigator will take custody of the required documents and books of accounts for investigation purposes.
 

What is the Main Purpose of Tax Investigations?

As the name implies, tax investigation is a method of enforcement conducted by the Inland Revenue Board Malaysia (IRBM) to ensure accuracy of tax filing. The aim of tax investigations is to investigate taxpayers who are suspected to be involved in fraud, wilful defraud or negligence in reporting their income.
 

Is Tax Investigation Similar to Tax Audit?

Tax audit is a regular routine inspection of a taxpayer’s business financial record to ensure that they are compliance with tax laws and regulations. However, tax audit is not carried out surprisingly where the owner will be informed prior to any action. Meanwhile, tax investigation is conducted on a taxpayer suspected to have involved in fraud. In short, tax audit is different from tax investigation.
 

What is Wilful Evasion of Tax?

Wilful evasion of tax refers to any action or deed performed (or done) with the intention of evading or assisting any other person to evade tax:

  1. Deliberate omission or understatement of any income from a return;
  2. Giving a false answer(orally or in writing) to a question asked or to a request for information made for the purpose of the Act;
  3. Falsifying books of account or other records, or authorizing the preparation or maintenance of false books of accounts or other records;
  4. Making use of any fraud, art, or contrivance, or authorizing the use of any fraud, art, or contrivance.

 

How Does Tax Investigation Work?

The Director General of Inland Revenue (DGIR), through Income Tax Act of 1967, has the power to put any taxpayer under “Investigation” and “Tax Audit”. Tax offences such as non-compliance and tax evasion will be charged under the Income Tax Act.

In the case of detection of tax offence such as fraud, wilful defraud or negligence, the IRBM is empowered to conduct:

  1. Additional Assessments –IRBM will further investigate your expenditure and income.
  2. Heavy Penalties – The penalty will start at 45% and it can go up to 300% depending on the case imposed on taxpayer (Special Penalties, where penalties start at 21%, will be imposed on taxpayer depending on the case).
  3. Fines – Another type of penalty that depends on the case imposed on the taxpayer.
  4. Jail Term – Omission or understatement of income as well as over-declaration of expenses is considered a criminal offence.

If you do not want to put yourself and your business at risk, you should start to make sure that you are compliant and that all information you have provided is correct and accurate before tax filing.

Need some help to liaise with IRB officer for the tax investigation or tax audit? Get in touch with 3E Accounting, where our firm of experts skilled in a wide range of tax backgrounds are ready to assist with all your taxation needs.