TCG is no longer a concept on the horizon, it is a reality shaping the future of tax compliance.
IN recent years, Malaysia has undergone significant developments in its tax landscape, effectively aligning our tax regimes with global leading practices.
Among these is the introduction of the Tax Corporate Governance (TCG) framework, launched by the Inland Revenue Board (IRB) in June 2022.
Initially introduced as a pilot programme, the framework has transitioned into a voluntary initiative open to eligible taxpayers, marking a new era in the country’s corporate tax compliance.
The IRB’s efforts, along with the success of pilot programme participants, have established a strong foundation for TCG in Malaysia, setting a benchmark that will inspire and encourage more taxpayers to embark on their own TCG journey.
This is key in view that the TCG programme represents more than a mere compliance exercise – it is a strategic opportunity that reflects Malaysia’s commitment to fostering a cooperative relationship between taxpayers and the IRB.
Integration of TCG with tax compliance requirements
The framework is designed to complement existing tax compliance landscape.
It encompasses a wide range of taxes including corporate income tax, petroleum income tax, real property gains tax and stamp duty.
By embedding tax controls into daily operations, tax compliance is no longer an isolated function for businesses but an integral part of corporate governance.
Fulfilling the responsibility of a taxpayer is an integral part of one’s civic duty, which is vital in strengthening our socioeconomic position and driving our nation’s progress in a sustainable manner.
As such, TCG has always been and continues to be among a key component of environmental, social and governance practices.
Moreover, the implementation of TCG delivers value beyond mere regulatory compliance, it offers strategic advantages by embedding and integrating sound tax practices into day-to-day operations.
A closer look at business functions shows that tax is playing an increasingly significant role in strategic risk management. This is evident in the global cooperative compliance landscape, where tax risk is integrated into broader enterprise risk management frameworks, helping businesses identify and manage tax risks more effectively.
The implementation of TCG fosters greater awareness and understanding across business functions regarding tax considerations – particularly at the transactional level. This proactive approach enables organisations to assess tax implications early in the process, rather than at the final stage when tax returns must be submitted, liabilities are due and there may be insufficient time to properly study the tax implications of a transaction.
Establishing clear tax policies and procedures allows organisations to significantly minimise the likelihood of tax disputes and penalties, thereby protecting their financial integrity.
Senior management and the board of directors will gain an early understanding of the tax implications and costs of large transactions and projects, minimising unpleasant surprises.
Early investment in TCG through participating in the TCG programme, establishing a formally documented tax process which ensures that appropriate resources are allocated to manage the tax function, may also lead to long-term savings in both cost and effort, particularly in the event of a tax audit.
According to the IRB, successful TCG participants will benefit from no or lesser tax audits.
This presents an opportunity for businesses to better allocate their resources, shifting from a reactive or remedial approach to a preventative tax strategy.
Proper planning of the roles and responsibilities of the tax function will ensure that resources are used efficiently, and more time is spent on high value functions such as supporting the business and strategic planning, as opposed to data-entry and reconciliations – tasks which can be identified and thereafter outsourced or automated as part of the TCG initiative.
While TCG focuses on collaboration with the IRB, it also cultivates a stronger internal cooperation within businesses.
It encourages communication across departments, such as finance, legal, procurement, human resources and more. This holistic approach takes into consideration all aspects of tax compliance, leading to a more informed decision-making and better alignment with tax requirements.
TCG operates alongside other tax compliance initiatives
Moving forward, TCG is anticipated to operate in tandem with other legislated tax compliance initiatives, such as e-invoicing, which similarly upholds the principle of tax transparency.
For example, a company’s documented tax processes must now consider the recent e-invoicing developments as part of a comprehensive tax compliance strategy.
The IRB is expected to maintain its current tax audit efforts, which are a key component of fostering tax compliance.
However, with the enhanced transparency demonstrated by TCG programme participants, there is potential for the IRB to shift towards more targeted and in-depth audits of other taxpayers.
This evolution may also prompt a reassessment of audit resource allocation, enabling the IRB to focus on higher-risk areas.
As TCG integrates with other initiatives, it will likely foster a more cohesive compliance environment, encouraging businesses to adopt a holistic approach to tax governance.
This synergy can lead to improved compliance outcomes as organisations become more adept at navigating the complexities of the tax landscape.
Future of TCG in Malaysia
With the conclusion of the pilot programme, the outlook for TCG in Malaysia is promising. The focus will likely shift towards refining the framework based on feedback from participants and stakeholders.
Continuous improvement and adaptation to changing business environments will be essential for the sustained success of TCG implementation in Malaysia.
As the tax function continues to evolve in response to rapid regulatory changes, tax professionals and relevant business units must strengthen their capacity to adapt to tax legislative developments.
Amid navigating increasingly complex tax requirements, the growing awareness and adoption of TCG is timely and essential, serving as a foundational pillar for building future-ready tax functions across organisations.
With more taxpayers recognising the value of tax governance, we can expect an increase in voluntary participation.
In this respect, ongoing education and training programmes for corporate leaders and tax professionals will be crucial in fostering a deeper understanding of TCG principles and practices.
The UK, Australia, New Zealand and Singapore have implemented their own TCG models.
Hence, Malaysia’s TCG implementation is steadily aligning with international tax standards and trends, reflecting a broader shift towards transparency, accountability and structured compliance. This alignment not only strengthens Malaysia’s position in the global market but also allows local businesses to remain competitive and compliant from an international perspective.
Businesses operating across borders can consider adopting a consistent TCG approach across countries (with variations as needed based on local country practices and requirement), which will standardise the approach to tax risk management.
Businesses also need to ensure that their TCG framework is not a static document and that this evolves and adapts to changes in the external environment.
For example, with the upcoming implementation of the self-assessment system for stamp duty with effect from Jan 1, businesses should ensure that stamp duty is also covered in their governance approach.
While there is no formal indirect tax governance framework in Malaysia and given the broader scope and increased impact of indirect taxes on businesses as well as supply chains, companies can consider pro-actively extending their TCG frameworks to cover indirect tax matters.
Overall, TCG is no longer a concept on the horizon, it is a reality shaping the future of tax compliance. For businesses, it presents a unique opportunity to enhancegovernance, reduce risk and build trust with stakeholders and regulators.
As Malaysia continues to align with international practices, embracing TCG is not just a strategic move but a necessary one.
Elias Mohammad is partner, global compliance and reporting, at Ernst & Young Tax Consultants Sdn Bhd. The views expressed here are the writer’s own.
