Your 10 Questions

Datuk Hasmah AbdullahInland Revenue Board Malaysia CEO answers ...

Do rich people get preferential treatment when it comes to paying their taxes as I have heard files of VIPs are separated from the common folk? – Jeswant Singh, Kuala Lumpur

The VIP and staff unit was set up for specific public figures and not for rich people.

These files are handled by senior officers to ensure confidentiality rather than for the purpose of giving preferential treatment since the same laws and procedures apply to them, too.

Likewise, now that most of our files have been scanned and information is now accessible from the system and not from the physical files, the same senior officers will be provided specific IDs to access the data.

We heard that 90% of the income tax revenue comes from Chinese. Is this true? – Edward Han, Subang Jaya

That is a misconception. It so happens that the majority of Chinese, especially in cities and towns, are in business and since business cases are often selected for audit through our risk management system, it is perceived that 90% of the income taxes are from the self-employed Chinese.

However, one should note that there are an equally great number of Malay traders in small towns and villages, albeit the volume of business could be much smaller, who are registered with our local branches.

There are also a great number of Malays and Chinese, too, who are in employment and these taxpayers are perceived to be paying every cent of their hard-earned income.

Although the IRB does not maintain records of taxpayers based on race, statistics of tax collection from individuals (including Indians and other races) is about 18% of the total tax collected of which 35% is from the self-employed group. I hope this fact dispels the perception that there is a racial bias in the tax system.

Late refund of tax credits to taxpayers, particularly senior citizens, is a perennial problem. How are you tackling this problem? – C.S. Ng, Ampang

Since 2007, the IRB has embarked on an exercise to refund all over-payment of taxes or excess credits without the need for taxpayers to request for them. Priority has always been given to senior citizens’ cases.

The delay in refunds was partly due to the long-established policy. It was a good policy then, to refund after all assessments have been brought up to date.

One of the things I did when I assumed the CEO/DG post at IRB was to change this time immemorial policy and to effect refunds as and when the claims are received and any outstanding and additional assessments to be finalised and tax collected separately.

This has helped the IRB to clear not only the backlog of over-payment claims but also refund current cases much faster.

It must be mentioned that not all cases processed end up as refunds. About 20% turn out to be non-refund due to errors in the return forms, especially manual returns, over claim for relief and deductions and so forth.

IRB has made a quantum leap in its delivery system. Back in the 60s, we almost had to beg for our refunds. How did you do this? – Bulbir Singh, Seremban

Refunds, or rather late refunds, had been a perennial problem especially for individual taxpayers.

We needed to address this image of being very efficient in collecting taxes but slow in refunding. We also needed to uplift staff morale badly affected by public criticism.

The Government has also set up Pemudah, a task force of senior government officials and private sector members to address the Government’s delivery system and ease of doing business in Malaysia.

With self-assessment and taxpayers having to pay their taxes in advance, it is equally important for the IRB to refund quickly.

It was not easy initially but we went ahead. We changed the long-standing policy of not refunding until assessments are up to date and introduced new processes to facilitate and identify straight-forward refund cases from those requiring audits and deployed much needed staff in the refund unit.

In 2007, the IRB was able to clear 400,360 cases consisting of both backlog as well as current cases, a jump of almost 120% from 2006 (183,731 cases).

Are you an unpopular person in social gatherings as people generally fear the tax-(wo)man? As the saying goes, in life there are only two certainties: death and taxes. – Joseph, Kuala Lumpur

There was a time back in the 1970s and 1980s, when the mention of Inland Revenue Department aroused fear. This has changed with the paradigm shift to customer focus in the 1990s. The people I meet in social gatherings now have good words about the IRB, about the early/fast refunds, the pleasant encounter at the branches and service centres.

How do you settle refund woes and ensure that over-payments are refunded promptly? – Anna Leong, Kuala Lumpur

We do receive an odd-complaint from time to time. Where there is basis, we will follow through to ensure that the refund is expedited.

However, there are also complaints of not getting the refund when it has actually been processed and the cheque has been sent to the last known address of the taxpayer.

The IRB, at any one time, has to cancel more than 2,000 cheques (which accounts for about 4% of the total cheques issued) in a month in cases of returned cheques or cheques not cashed after the expiry period.

Taxpayers should ensure that the IRB is informed if there are changes in the correspondence address. This year, we hope taxpayers would provide their bank account numbers to enable us to effectively refund through the electronic fund transfer (EFT), direct into their bank accounts.

Is it true that for every tax audit, the IRB will find a way to impose penalty as one mechanism to increase tax collection? – Jeffry Ahmad, Setiawangsa

Penalty will be imposed if there is understatement or omission of income following a tax audit.

It is imposed as a tax deterrent and not a mechanism to increase tax collection. With self-assessment, the IRB puts its faith on taxpayers to calculate and pay their taxes correctly.

Penalties are put in place to discourage taxpayers from filing incorrect returns of income. However, the taxpayer would not be penalised if, say, he has made an arithmetic mistake in calculating the tax.

I have been billed thousands over additional income taxes every year. The reviews on my taxes have not been finalised to date. How is the IRD going to cut down response time and backlogs? – K.C. Loh, Complex Manager

One of the factors contributing to backlogs is incomplete and incorrect returns. This is further compounded if the returns are submitted manually and the handwritten figures are not discernible by the scanner and the returns have to be manually checked.

Multiply this by a few thousand of such returns and it can be very time consuming.

To overcome this problem, taxpayers are advised to fill up their return forms correctly and completely.

For audit cases, the IRB has an audit framework and standard quality as a guide in handling tax audit cases.

The timeframe for settlement of a tax audit should be within three months from the commencement of the audit. However, the IRB will inform the taxpayer on the progress of the audit in the event the case requires more than three months to finalise.

As the question posed by the complex manager relates to his personal case, I welcome the writer to contact me or my office so that we can check his case and settle it expediently.

Are there incentives to encourage or motivate taxpayers to remit the dues on deadline? – Pg Sheng, Batu Pahat

The Government has provided, from time to time, various incentives and spent considerable money to improve the infrastructure and services conducive to investment and doing business in the country.

Apart from development expenditure to improve the quality of living, the Government is committed to providing and maintaining services in education, health, security, to name a few, to ensure the well-being of the citizens.

The income tax law allows taxpayers, individual business and corporates, to pay their taxes in advance by bi-monthly and monthly instalments, and for the employee taxpayers, the monthly schedular tax deduction scheme. The IRB also allows reasonable instalment payments in cases of financial difficulties.

For the record, the majority of the taxpayers do pay their taxes on time. The improved tax refund mechanism should also encourage taxpayers to pay and file on time.

On the other hand, the law also provides disincentives in the form of increases in taxes and penalties if taxpayers fail to remit their taxes by the deadline or omit taxable income or make false claims of deductions.

The IRB encourages whistle blowers to report on companies allegedly involved in tax avoidance/evasion. Is it ethical for an employee to do so considering they will be betraying the company that pays their wages? – Jacklyn, Subang Jaya

The whistle-blower programme is widely practised in many countries. In the recent Budget 2010, our Prime Minister and Finance Minister had announced that Malaysia will formulate a Whistle Blower Act to encourage informers to disclose corruption and other misconduct in the fight against fraud and corruption.

While Malaysia is yet to have a formal whistle-blowing mechanism to provide protection and immunity to informers, the IRB has long had an informal mechanism to receive information of income tax fraud from informers.

Much of these have helped us recover back duty taxes and penalties from tax evaders. The revenue collected by the IRB will ultimately be spent by the Government for the development of the nation and for the welfare of the general public.

Whether it is ethical or not depends very much on one’s conviction – is it all right to maintain silence about someone who you know is cheating the nation, the general public and those who are in need of help or should you expose that person to the authority? I would say that it is more ethical to do the latter.