Board hauls up defaulters after voluntary disclosure deadline expires
PETALING JAYA: The Inland Revenue Board (IRB) is expecting an increase in tax revenue after actions to collect unpaid taxes have seen a number of large companies and prominent individuals being hauled up over unpaid taxes.
IRB acted against the tax defaulters after the deadline for them to voluntarily pay up expired.
“Our enforcement objective is really about increasing voluntary compliance. However, it cannot be denied that the activities will naturally contribute to the overall tax collection,” said IRB chief executive officer Datuk Sabin Samitah in an email interview.
“The activities are conducted on historical data that are based on the declarations or filings of returns made two or three years ago. Findings or revenues generated were based on their business performance from those financial years. We believe that IRB’s strategies for 2017 will address tax leakages which have put a dent in the nation’s revenue base.”
The pursuit of tax dodgers has been in the making for some time. IRB had rolled out a tax amnesty programme in 2015 and last year where individuals and corporations were encouraged to voluntarily disclose monies owed to the board. The penalty levied for the voluntarily cases was a fraction of the full brunt the board is now imposing on tax dodgers from this year.
“The recent publicity on our enforcement activities gives an impression of increased investigations by IRB.
“However, IRB as a tax administrator has been continuously carrying out investigations as one of its enforcement activities.”
Last month, Magnum Bhd and unit Magnum Holdings Sdn Bhd were served with notices of assessment with a penalty totalling RM476.5mil. Magnum said it and MHSB had appointed solicitors and are initiating proceedings to challenge the validity and legality of the notices of assessment.
Sabin said the tax amnesty was to address tax penalties on audit or investigation cases and late payments. It was an effort by the Government to encourage taxpayers to come forward within a stipulated time to enjoy reduced penalties.
“It had the desired outcome in the sense that many cases were settled quickly, but the IRB understands the need to be fair to compliant taxpayers, and hence this year’s strategy is to address non-compliant cases more vigorously,” he said.
IRB said it employed sophisticated analytics to determine cases for audits. It said although big corporations hired the biggest auditors to handle their taxes, there are other high-risk criteria which may reflect profit shifting schemes, which when pursued uncovers big sums of unpaid taxes.
“IRB’s policy in selecting case for audit whether it is for corporate, business or individuals is to always be transparent and maintain its integrity,” he said.
Apart from using technology to sniff out unpaid taxes, the board also relies on other ways to detect cases. They include information from external sources such as informants, the media, public, and review of income tax returns.
“However, each individual or company has to be studied separately based on the merits and facts pertaining to the case. The elements of culpability and evidence are important factors in determining the actions to be taken,” Sabin said.
“The IRB will audit a taxpayer at least once in a five-year cycle, which translates into roughly 20% of taxpayers being audited each year.
“If the number of taxpayers increases, the figure of 20% will naturally result in an increase in audit cases. Hence the perception that IRB conducts audit more intensely or frequently now is really a reflection of an increase in numbers of taxpayers in Malaysia,” he said.
The amount of direct taxes the IRB has collected in recent years has stagnated at best with the amount collected in 2014 being the highest with RM126.7bil. That dropped to RM111.8bil in 2015 and the Government, in its economic report last year, estimated that tax collection for 2016 would be at RM110.5bil.
It was reported in March that uncollected income tax was estimated at RM6.8bil as of Dec 31 last year.
Sabin said that although a higher gross domestic product (GDP) would correlate to higher tax collection, there were many tax expenditures in the form of tax incentives or exemptions to attract foreign investment. Following the introduction of the goods and services tax in 2015, taxes for individuals and corporates were cut.
“Therefore, we may not be able to tax certain portions of income despite the apparent growth in the GDP. Malaysia has reducing income tax rates for individuals and companies to create a competitive tax environment compared with other neighbouring countries.
“Together with other tax expenditures, it lowers the effective tax rate. The increasing operating costs of businesses compared with growth in income reported especially among companies in the manufacturing and services sectors may also result in lower taxable income. With enforcement strategies carried out in 2017 to address tax leakages, IRB expects to see a growth in income tax collection.”
Sabin said that based on 2015 figures, 18% of the population paid taxes in Malaysia. He said the threshold of taxability was generally quite high, therefore a significant number of the population falls outside the tax bracket.
“In order to broaden its tax base, IRB has designed strategies to increase tax awareness as well as identify tax dodgers. Our aim is simple, to make compliance easy, and non-compliance difficult.”
Sabin dismissed suggestions that the audits were selective. He said that case selection was objective and based on advanced analytics and intelligence gathered.
“Our systems do not recognise taxpayers based on politics and race. We have always maintained our policy of carrying out our duty without fear or favour. As far as we are concerned, protecting the nation’s tax base and creating a level playing field is our goal. We also hope that our efforts to address non-compliance will eventually be seen for what it is, to benefit our country.”