Tax Alert 23 January 2020

Welcome to Tax Alert, Grant Thornton Malaysia’s newsletter on the latest tax updates and information.

The Inland Revenue Board of Malaysia (“IRBM”) has released the following latest Tax Audit and Investigation Framework :

• Tax Audit Framework 2019 (effective date 15 December 2019) ; and
• Tax Investigation Framework 2020 (effective date 1 January 2020)

These latest framework highlights the following salient facts :

1) Tax Audit Framework 2019

Removal of Paragraph 7.7 (Tax Audit Framework 2018) – Monitoring Deliberate Tax Defaulters (“MDTD”) program

The IRBM has removed the MDTD program under the new tax audit framework. Previously, MDTD program was introduced by the IRBM back in year 2014 to monitor tax defaulters through the tax audit process.

Paragraph 7.5.8 – Proposed tax audit adjustment and penalty

Under the new tax audit framework, the proposed tax audit adjustment and penalty will not be raised together with the tax audit findings. The tax audit adjustment and penalty will now be shown in the tax clearance letter.

Paragraph 7.5.9 – Tax audit clearance

Under new tax audit framework, if there is no proposed tax audit adjustment after the tax audit, the IRBM will issue a tax clearance letter for the relevant years of assessment.

Paragraph 7.5.11 – Deadline for tax audit settlement

Under the new tax audit framework, a tax audit need to be resolved within the period of 90 calendar days from the date of first site visit or from the date of letter for determination commencement of settlement issued by IRBM, whichever applicable. In the event that the tax audit cannot be resolved within that 90 calendar days, the IRBM will inform the taxpayer accordingly.

Paragraph 10 – Offence and penalty

Under the new tax audit framework, if the taxpayer commit repeated offence after an audit / investigation was conducted, a penalty under Section 113 (2) of the Income Tax Act 1967 (“the Act”) will be imposed at the concession rate of 55% on the tax under-charged compared with the rate of 100% previously imposed.

The new framework defines repeated offence as:

   i.  Taxpayer that has been audited / investigated and additional assessment / composite

       assessment(s) has been raised under Section 113(2) of the Act; and

  ii.  The record of the first offence will be taken into account from notice of assessment(s)

       raised by the IRBM from 1 January 2020 onwards.

2) Tax Investigation Framework 2020

Paragraph 7.1 – Request for documents and information

The new tax investigation framework has introduced a new subparagraph in paragraph 7 where a tax investigation can now be carried out by issuing letters requesting for documents and information from the taxpayer, tax agent and third party.

Paragraph 10.1 – Failure to furnish return or give notice of chargeability

Under the new tax investigation framework, taxpayer who fails to furnish the Income Tax Return Form (“ITRF”) for the period of 2 years of assessment or more, shall upon conviction be liable to a fine of not less than RM1,000 and not more than RM20,000 or to imprisonment for a term not exceeding 6 months or both. The taxpayer shall also pay a special penalty of treble (3 times) the amount of tax which has been undercharged (previously 3 times the amount of tax charged).

If no prosecution has been instituted, the Director General of IRBM may impose a penalty equal to treble (3 times) the amount of tax which has been undercharged (previously 3 times the amount of tax payable).

Paragraph 11.2 – Payment procedures

The IRBM has removed one of the conditions for settling the balance of back duties (including penalty) by instalment where higher penalty rates shall be imposed on longer instalment periods compared with full payment or shorter instalment period.

Link to above framework :

Tax Audit Framework 2019 (only available in Bahasa version)

Tax Investigation Framework 2020

Should you require any clarification, please do not hesitate to contact our Tax team