The Inland Revenue Department says it plans to crack down hard on tax defaulters and dodgers. Trade associations urge restraint because business conditions today are challenging, and especially where underpayment is due to technicalities.
RECENTLY, it was highlighted in the media that the Inland Revenue Department (IRD) officers would be going after businesses and professionals — particularly doctors and lawyers — for under-declaration, avoidance and non-payment of taxes.
With the vastly reduced revenue from the plunge in crude oil price, and faced with the prospects of a further economic slowdown, the Government is trying to raise more money from other channels to make up the shortfall.
To encourage income tax defaulters to pay up what is due, the IRD has posted a statement on its website saying that it will reduce fines for late payments or non-payments if offenders come forward voluntarily.
No one can fault the Government for pulling up tax defaulters, especially the big corporate groups (big fish) that have made tonnes of money in the past when business was booming and the economy was flying. But somehow many of them found ways to pay less than what they should, and escaped detection.
For reasons not known to the layman, the income tax officers have failed in the past to nab many big fish. Hopefully, during bad economic times like now, they can work harder for the nation and help to retrieve some lost billions.
The IRD has said it would be fair. They will also go after the small and medium enterprises (SMEs), in addition to the big fish.
In this, they have the open support of Datuk Joseph Lim, vice president of Malaysia-China Chamber of Commerce. But for a different reason.
Lim told local SMEs at a seminar on Feb 26 that they must pay tax in order to seize the current business opportunities provided by China’s one-belt, one-road regional economic strategy.
“If you report losses every year while you make money, which company from China would want to do business with you or enter into joint venture with you? Which bank wants to provide financing for your project?
“If you don’t act fast and pay tax, you will lose business opportunities,” said Lim, whose company Global Green Synergy Sdn Bhd is a major beneficiary of the belt-road strategy.
He told SMEs to stop the practice of having two sets of accounts — the money-making accounts for themselves to celebrate in private and the loss-making accounts meant for the IRD.
But the Associated Chinese Chamber of Commerce and Industry in Malaysia (ACCCIM) and Huazong (Federation of Chinese Association in Malaysia) are appealing to the authorities not to come down too hard on SMEs.
Tan Sri Pheng Yin Huah told the Chinese press: “This is not the right time to go after SMEs as many are facing cash flow problems under present difficult economic conditions and are either retrenching, forcing staff to take a pay-cut, downsizing or even contemplating closing down.
“We agree that profitable businesses should follow the law and pay corporate taxes. But with businesses not doing well now, the Government should give considerations to the smaller SMEs which normally do not keep good accounts.”
Pheng has suggested that the IRD allow offenders to settle unpaid taxes in instalments of up to two to three years to help relieve their hardship.
ACCCIM’s secretary general Datuk Low Kian Chuan, on the other hand, has proposed that the IRD give “bigger discounts” to offenders who could pay more in fewer instalments. In this way, more businesses might volunteer to pay arrears.
“But the Government should focus on the big fish as the tax they owe is huge. Collections from a lot of small fish may not match the total recovered from one big fish,” he told China Press.
Low also pointed out that many SMEs owed taxes due to technicalities, and he urged the IRD to be more lenient in dealing with such cases.
In fact, the current economic slowdown is already straining the operations of many businesses, which have already been hit by the imposition of goods and services tax (GST), the plunge in the ringgit, the local political situation and the weak consumer sentiment.
And when the new minimum wage policy comes into force in June, businesses will face another round of increase in the cost of doing business.
The predicament of the businesses can be felt in the recent survey done by the Federation of Malaysian Manufacturers (FMM) and Malaysian Institute of Economic Research (MIER).
According to the survey, the general business conditions index fell three points to 83 in the second half of last year (2H15) — the lowest since the survey started in 2012.
The second half of 2015 saw weaker local and export sales, lower production volume and capacity utilisation, moderating cost of production and capital investment. Four in 10 respondents said they expected a decline in business activity in the first half of 2016, and about 11% of those surveyed indicated they might close down business.
The survey was carried out from Dec 16, 2015 to Jan 22, 2016, involving 275 respondents nationwide.
FMM president Datuk Seri Saw Choo Boon told a press conference that concerns for 1H16 included a slowdown in local and export sales, price competitiveness, rising costs of doing business, and lack of incentives to drive manufacturing into high value-add.
The outlook in 2016 is marred by the global economic slowdown, especially in China.
Others include ringgit depreciation, competition from imports from China, weaker local demand, rising inflation, uncertainty in wages and foreign labour, prices of utilities and transport.
Given that SMEs form the backbone of the economy and provide over 90% of employment in the country, the suggestions by ACCCIM and Huazong the the IRD handle them with a degree of leniency seem reasonable, especially in light of the trying business conditions.