This article first appeared in The Edge Malaysia Weekly on May 29, 2017 - June 4, 2017

1    THE Inland Revenue Board is rightfully going after tax evaders but it is said that its aggressiveness is due to two things: (i) It has been given a high target for tax collection (despite a 1% corporate tax cut and rise in cost of doing business); and (ii) A portion of the tax collection goes to its bonus/reward pool. Is the perception fair?

The target for tax collection is not new to the IRB. It is set annually by the Ministry of Finance based on economic projections and other relevant variables. Likewise, enforcement against tax evaders is also something that has been part and parcel of our operations since day one. This year, our strategies are based on the principles of making compliance easy and non-compliance difficult. We have taken steps to increase the quality and convenience of our services to facilitate taxpayers who consistently pay their taxes.

Tax non-compliance, whether a failure to report the correct income or failure to pay tax due within the stipulated time, does not only affect the government’s revenue, but is also unfair to compliant taxpayers who contribute to the nation’s building without fail. Therefore, this year, IRB is addressing non-compliance more vigorously. It is also possible that the public is now more aware of our enforcement activities because our actions are now more publicised. Our aim is to increase tax awareness and voluntary compliance, and reduce tax leakages. There is no hidden agenda, as whatever we do is ultimately for the benefit of the people.

2    Is it true that a portion of the money collected goes into a bonus pool for IRB officers? Is it only for the investigation and enforcement teams or officers? What is the rationale for this? Will the sum in the bonus pool be reversed if a case is successfully appealed or taken to court? We are told that IRB officers are being rewarded based on the amount of penalty or tax collection and speed in closing cases. This is why it is said that there could be biases.

IRB acts as an agent for the government, by collecting the right amount of tax from persons liable to tax in Malaysia. Every sen collected goes to the Treasury and is then used by the government according to the annual tabled budget. Therefore, speculation that a portion of the money collected goes into a bonus pool for IRB officers and so on is not true.

3    What are the amounts of penalties and fines, uncollected taxes and successfully recovered taxes of the past three years? What are the expected figures for this year?

The amount of outstanding tax depends on the assessments raised, and the tax paid. Therefore, it is not a final figure at any one time. As for penalties and fines, the figures very much depend on the findings of the audit or investigation cases, or late payments.

4    Are the targeted corporate and individual tax collections for 2017 achievable and how much of it is due to arrears and fines and penalties?

All else being equal, the strategies that we have in place this year will help towards achieving the set target. Fines and penalties are really deterrent factors and are imposed on those who choose not to comply. We do not make it an aim to impose penalties. On the contrary, we highly encourage taxpayers to come forward for voluntary disclosure. This way, we create a mutual learning process where taxpayers understand their responsibilities better and IRB officers gain better insight into and understanding of taxpayers’ industries or operations.

5    Some people say the IRB’s aggressiveness is undue, creating hiccups in businesses and negative investor sentiment amid a tougher business operating environment. Some even say IRB is bringing up issues, betting that most people would just negotiate a settlement to get on with business, which is not good for the business environment and the country in terms of attracting investments. There are listed companies that say they got a surprise tax bill, including  Tenaga Nasional Bhd. Adding to the negative perception is Tan Sri Lee Kim Yew’s message, which was critical of IRB, to his friends that ultimately went viral. Your feedback on these comments?

As mentioned earlier, IRB only acts against those who deliberately fail to comply with the law. Enforcement of tax laws is provided under the Income Tax Act and, as such, it is one of IRB’s main functions to ensure that everyone who is liable pays his tax in a timely manner. Any action taken in pursuit of non-compliant taxpayers is bound by the relevant laws and regulations.

IRB’s investigation and audit cases are chosen based on careful analysis and set criteria. Some cases are selected for compliance audits to determine whether the taxpayers have correctly reported their income and made proper deduction claims. Other cases may be selected based on careful analysis of accounts and transactions. Either way, findings and issues raised during these activities are presented to the taxpayers, who are then given the opportunity to defend their declaration and substantiate it with evidence. Where an agreement cannot be reached, there is the Dispute Resolution facility.

6    Businesses and individuals say their tax filings are based on the advice of tax consultants. Does the IRB take this into account when imposing penalties? Can you please elaborate on IRB’s thought process here?

Due to the specialised nature of the services, a tax auditor will be able to identify tax risks and exposures and advise on how to minimise such tax exposure, but the taxpayer is still responsible for his/her tax affairs. Each consultant plays a different role, for instance, an accountant prepares accounts in accordance with accounting standards. An auditor expresses his or her opinion on whether the company’s account portrays a true and fair view, whereas a tax agent prepares the individual or company’s tax computation in accordance with IRB’s public rulings and the Income Tax Act. The Act provides that a taxpayer is liable to pay a penalty for failure to furnish a return or making an incorrect return. In addition, if the taxpayer and the tax consultant are suspected of evading tax, they can be charged in court. The Act provides that any tax consultant that gives advice or assistance that results in an understatement of tax liability by the taxpayer can be charged with an offence and penalised.

The ultimate answer to your question is that any error made by a tax consultant is not a factor to be considered in imposing a penalty on the taxpayer. There is always an avenue or remedy for the taxpayer and the consultant to resolve any dispute arising from the submission of an incorrect return. It is with this understanding too, that tax education is a priority for IRB. We also encourage taxpayers to consult us when they are unsure of certain issues, especially those that are considered ‘grey areas’.

7    Is it true that IRB is going through the filings of companies that were involved in large mergers and acquisitions in the past few years again for possible shortfalls?

For IRB, this is a routine tax audit. Its policy when it comes to selecting cases for audit, whether it is for corporate, business or individuals, is to always be transparent and maintain integrity. A highly sophisticated advanced analytics case selection system is used for this purpose.

8    How mature would you say Malaysia’s tax collection system is, compared with global standards? Malaysia’s individual tax collection, for instance, is said to be among the more efficient systems, with wage earners paying taxes via a monthly tax deduction system. Yet, based on IRB’s targeted RM326 million in arrears from 3,838 cases, it seems that there are still sizeable tax evaders, so much so that IRB needs to set up a 200-member civil legal branch to haul up defaulters. Who are these people or businesses who are not paying their dues? And have they been given enough opportunities to explain before any legal action and/or actions such as freezing of assets are taken?

Malaysia’s self-assessment system and ‘pay as you earn’ concept, whether by way of CP204 for companies, CP500 for sole proprietors and monthly tax deductions for salary earners, has benefited taxpayers in that they only have to pay the balance of tax due (if any). Unfortunately, there will be those who continue to default despite several attempts by IRB to engage them to come up with an acceptable payment arrangement.

IRB has strict procedures in place to address payment defaulters. We will begin with a notification of late payment penalty, and if the taxpayer fails to act, we will send a notice of tax arrears. We will then proceed to contact him to remind him. A notification of court proceedings will follow and a travel restriction may be imposed when all attempts [to arrange payment of tax] have failed or when the taxpayer, upon agreeing to a certain manner of payment, chooses to default.

9    How many businesses and individual taxpayers are there in Malaysia?

The total number of taxpayers is 5.6 million, comprising salaried workers (76%) and businesses.

10     Is there anything that the IRB would like to highlight to businesses and the public?

We firmly believe that the key to tax compliance is knowledge and understanding of the law, as it will overcome unwarranted fear and prevent misunderstandings. Anyone running a business, whether as a sole proprietor or as a company, is responsible for registering a file with the IRB and submitting a declaration of income, regardless of whether it is taxable or not. Those who have registered but have neglected to declare the correct income are highly encouraged to come forward for voluntary disclosure. This call applies to both individuals and businesses. Likewise, taxpayers who have not paid their tax are advised to contact the nearest branch to make payment arrangements to avoid any future inconveniences.  

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