AS we approach the end of tax season, businesses are reminded of the looming deadline to file and settle their taxes. It is timely for businesses to undertake a thorough “tax health check” and address any possible tax non-compliance such as tax evasion.
Following the Budget Recalibration announced early this year, the Government has announced a tax amnesty programme for 2016 to encourage taxpayers to voluntarily disclose their income accurately and to settle any tax arrears. This programme is only granted from March 1, 2016 to Dec 15, 2016.
The Finance Ministry first launched the tax amnesty programme in 2015 to allow businesses and individual taxpayers to file delinquent returns or rectify prior incorrect tax submissions and to pay only the tax and interest owned.
It is debatable whether a tax amnesty programme is an efficient policy tool to recover unpaid tax. Certainly, there are pros and cons in introducing a tax amnesty programme.
A tax amnesty programme is expected to encourage improved tax compliance and corporate governance amongst local businesses, particularly the small and medium sized companies.
Tax amnesty can also be an effective way to collect tax with minimal administrative effort on the part of tax authorities. For instance, Italy has raised €60 billion from a tax amnesty programme in 2009, much more than the government had expected.
In an era where banking secrecy is ending and where there is greater international exchange of information and transparency in tax matters between countries, it has become increasingly difficult for businesses and wealthy individuals to avoid paying correct taxes.
Malaysia has also agreed to implement the Organisation for Economic Co-operation and Development (OECD) Standard for Automatic Exchange of Financial Account Information in Tax Matters and has taken a policy decision to allow for exchange of bank information.
Taking this into consideration, the pressing question is should businesses come clean and take this opportunity to perform a detailed review of their tax compliance status? If yes, how can businesses benefit from the tax amnesty programme?
Firstly, businesses benefit from reduced tax penalties if they opt for voluntary disclosure of income for previous years of assessment.
To benefit from reduced penalties taxpayers must meet the conditions laid down by Inland Revenue Board of Malaysia (IRBM) (see Operational Guidelines 1/2016).
Though not specifically stated, it is implied there is immunity from prosecution unless fraud is involved. The voluntary disclosure of income is not limited to a specified number of years.
Coming clean before the taxman during an amnesty period is an alternative to costly tax investigations and possible criminal prosecutions.
Secondly, businesses will be entitled to waiver of tax increase (penalty on late payment of tax) for those who wished to settle their income tax in full before or on Dec 15, 2016. This may result in substantial savings especially if the tax amount is high.
The eligibility for the reduction in penalty and waiver of tax increase will depend on the merits of each case and are subjected to the rules and regulations stipulated by IRBM.
Certainly the Malaysian tax amnesty is now providing an opportunity for taxpayers to reduce their tax bills by voluntarily disclosing their prior year’s income or rectifying incorrect income declared earlier.
DR KUEK TEE SAY
Programme Director for Postgraduate Law Programmes
Taylor’s Law School