PETALING JAYA: A tax professional says those who have been faithfully paying their dues have no cause to be alarmed despite the Inland Revenue Board (LHDN) now being allowed to access taxpayers’ banking information without warning or permission for investigation.
Tax agent Christine Koh said this meant that the time frame for tax audit would be shortened and the process sped up, access information of these accounts from the banks instead of waiting it to be furnished by taxpayers.
“Currently, if LHDN requests for a taxpayer’s bank statements, but the person does not have them on hand, then LHDN would give maybe two or three months for the taxpayer to get the statements and submit them,” she said.
Following the passing of the Finance Bill in Parliament yesterday, a new provision will be included in the Income Tax Act.
This new Section 106A grants powers to LHDN to access bank account information of taxpayers for the purpose of making garnishee order applications.
A garnishee order is a court-approved order that allows a creditor to redirect a person's funds to them when they are owed money.
LHDN will no longer have to inform taxpayers when requesting their bank account details; while financial institutions ordered to furnish the information will also not be allowed to disclose to anyone that such a request has been made.
Koh said it was quite common for tax authorities in other countries to be able to access banking information of taxpayers.
As to the stipulation under Section 106A that financial institutions cannot inform taxpayers of LHDN’s request for bank statements, Koh said there should be more transparency.
“The procedures should be known to the public; under what circumstances will LHDN request for information from the bank? They should also notify taxpayers when doing so.
“The Act is good in terms of easing LHDN’s work in tax audit and shortening the time frame of tax audit but the procedures must be transparent.
“Taxpayers should be informed accordingly and let taxpayers have sufficient time to provide necessary justifications,” she added.
A previous media report also noted that the Personal Data Protection Act, which is meant to protect confidential information, would not come into play when Section 106A is enforced.
Koh said taxpayers need not worry about their banking information being leaked as there is secrecy assurance provided for under Section 138 of the Income Tax Act.
LHDN has a legal obligation to keep taxpayers’ tax affairs confidential under the secrecy provision. The Act also stipulates that any information or document obtained by LHDN is considered classified material.
“The information will not be disclosed; the documents will only be for internal use and taxation purposes only. In other words, data protection will not be breached,” she said.
Although LHDN may now be able to obtain taxpayers’ bank statements, she said the people’s rights would be protected as long as the tax authority acted professionally and gave taxpayers a chance to explain their cash flow.
“With the new law, LHDN should just use it as a way to speed up the tax audit process and not use the limited information that they have from the taxpayers’ bank statements to jump to conclusions and peg it as tax avoidance.
“Because in a bank statement, the information may be limited, and just because they (LHDN) see a lot of money coming in, they can’t just conclude it as unreported income because there’s always a possibility the taxpayer is receiving cash that is not subject to tax.
“LHDN still has to give taxpayers proper time to explain and provide supporting documents accordingly.
“As long as LHDN does not misuse its power and jump to conclusions, then I would say that the law is a good one,” she said, adding that taxpayers having issues clarifying their case with LHDN could engage tax agents to assist them.