THIS is not the first time Malaysia is granting tax amnesty.
The Special Voluntary Disclosure Programme (SVDP), launched last November is the third attempt in recent times by the Inland Revenue Board (IRB) to recover funds lost over the years to potential tax evasion, and perhaps, in assets stashed overseas by wealthy individuals and businesses.
In 2015 and 2016, the IRB had implemented similar programmes, though it is unclear how successful they were.
So, how different is the SVDP from past tax-amnesty programmes?
According to Deloitte Malaysia country tax leader Sim Kwang Gek, the current scheme will likely be more effective in recouping funds for the government, given the IRB’s wider access to individuals and companies’ financial information through the use of Big Data analytics.
“With the adoption of Big Data and the Automatic Exchange of Information (AEOI) initiative by the Organisation for Economic Co-operation and Development (OECD), I think the SVDP will be more successful compared to previous programmes, due to the availability of data and information to the IRB to nab tax defaulters,” she explains.
Malaysia is signatory to the Convention on Mutual Administrative Assistance in Tax Matters under the OECD. This gives the IRB access to the financial information of individuals and companies in more than 100 countries.
Also optimistic that the SVDP could potentially yield better results for the government, Ernst & Young Tax Consultants Sdn Bhd (EY) tax leader Amarjeet Singh notes that there is better organisation this time around, and continuous engagement by the IRB and its officers with the public through various channels to create awareness.
Amerjeet points out that there are some important features in the SVDP that will encourage a better take-up rate for the scheme. These include the IRB’s promise of no further scrutiny on taxpayers that participate in the programme and make voluntary declarations in good faith; the promise to maintain confidentiality of the information declared; the lower penalty rates offered; and the enforcement of the AEOI.
“Taxpayers that did not come forward to declare income subject to Malaysian tax but maintained offshore will now have an added impetus to come forward,” he says.
Under the SVDP, the penalty would be 10% of the tax payable for disclosure made between Nov 3, 2018 and March 31, 2019.
For disclosure made from April 1 to June 30, 2019, the penalty would be 15% of the tax payable.
After the SVDP expires on June 30, 2019, the penalty rates would range from 80% to 300%.
Since the launch of the scheme, the IRB has sent out a total of 8.3 million letters and emails to registered taxpayers to notify them of the SVDP.
‘The IRB must walk the talk’
S. Saravana Kumar, a tax lawyer and partner at Lee Hishammuddin Allen & Gledhill, stresses that while the SVDP is good, the IRB “must walk the talk”.
“Anyone who pays their tax under the SVDP must be assured that their submission is accepted in good faith and that composite assessment will be issued to ensure finality and certainty to taxpayers,” Saravana says.
He notes that the SVDP is not the final settlement of taxes, although the IRB says it will accept the submission in “good faith”. The IRB, in its operational guidelines, says it can still audit/investigate a company taking part in the SVDP.
“So, a taxpayer making a submission on the SVDP can be audited/investigated even on the same matter for which they make the voluntary submission. Hence, where is the certainty to taxpayers that their tax problems have been resolved?” Saravana questions.
“The IRB, as a matter of administrative policy, is not issuing composite assessment to taxpayers to make voluntary tax payments under the SVDP. Composite assessment as provided under Section 96A is the statutory tool to resolve tax shortfalls, and the settlement which will be signed by a composite agreement is binding on both parties,” he says.
Saravana also questions the IRB’s recent move in issuing SVDP notices via post and email to “all and sundry”, including retirees, housewives and senior citizens.
“Shouldn’t the notice be sent to the targeted crowd, rather than indiscriminately being sent to retirees, etc, and causing them unnecessary anxiety?” he asks.
“There is another concern, as fraudsters are going around claiming to be IRB agents and targeting vulnerable and gullible Malaysians, making them part with their money,” he adds.
While the notices from the IRB have undoubtedly caused anxiety among some quarters, Sim argues that most letters are merely general letters aimed at raising awareness on the SVDP to taxpayers.
“The letters should not be a cause for concern, especially if the taxpayer has been fully compliant with the law. For taxpayers who have under-declared or misreported their income, they may take advantage of the SVDP in view of the reduced penalty rates,” she explains.
Post-SVDP, experts say, Malaysia will likely have a better system and enforcement in enhancing tax compliance.
“To a certain extent, this is definitely possible due to the increased penalty rates of 80% to 300%, and the AEOI initiatives,” Sim says.
“To further enhance tax compliance, the IRB can consider simplifying tax rules and setting clear guidelines and rulings on various tax issues.
“A reduction in the corporate tax rate will also reduce motivation to evade tax and should encourage greater tax compliance,” she adds.
Similarly, Amerjeet notes that tax laws in Malaysia are robust and that the IRB is highly experienced and equipped to carry out enforcement activities through audit and investigations.
“These factors, combined with the data and technology at the disposal of the IRB, will certainly enable it to detect non-compliance and evasion,” he explains.
On that note, Amerjeet says taxpayers should take the opportunity of the SVDP to “clean up” their tax affairs and ensure errors in the past are not repeated, going forward.
“This is particularly important, as the IRB is expected to increase enforcement activities and raise penalty rates after the SVDP comes to end,” he says.