LAST year, the Inland Revenue Board (IRB) shifted their random targets for investigation of tax under-reporting to three groups of professionals – doctors (specifically specialists in private practice), lawyers and artistes.
Unlike general practitioners (GP) whose clinics are located in commercial areas, most specialist doctors set up theirs in the hospital. Both register their business as Sendirian Berhad (private limited) and pay the required company taxes.
Although specialist doctors carry out their practice in private hospitals, they are not employed by these hospitals. They are independent consultants who are invited to provide medical service to the hospital. They receive no employee benefit from the hospital, and they pay rental for the consultation suite and parking as well.
Unlike GPs, specialist doctors practise dispensing separation where they only provide consultation and surgical procedures, allowing the patients to get their prescribed medicine from the pharmacy.
The Sendirian Berhad company enters into an agreement with the private hospital to use its facilities, and outsources administrative matters, staffing and finance to the hospital by paying a fee proportional to the volume of business.
In essence, the specialist practice in private hospital is identical to the GP’s clinic.
If the practising specialist is busy, the company appoints directors to supervise the business. Company expenses include rental for the clinic, management fee, accounting services, renovation and maintenance of the premises, office and medical equipment for example ultrasound machine and telephones, professional indemnity insurance, and etc.
Last year, the IRB decided that the business model of all specialist doctors practising in private hospitals for the past 35 years was a front for the purpose of tax evasion. It also contended that Sendirian Berhad is an illegal entity for specialist doctors in private hospitals, hence the collection received monthly through the hospital is considered personal income and should be taxed under the personal tax category.
As a result of this latest interpretation, specialist doctors would be slapped with a retrospective five years’ penalty for under-reporting their personal tax. This may result in bankruptcy for many involved and all the Sendirian Berhad companies would have to be wound up.
In fact, most of these private limited businesses have been audited and approved by the IRB over the years. One may wonder why the new interpretation is being enforced now. Are specialist doctors being victimised to increase tax revenue? Is this noble profession being recruited for “national service” to prop up the country’s reserves? And why is this applicable only to specialist doctors in private hospitals and not to the GP practice, which is a similar business model?
Furthermore, if the law is not new, why was it not enforced in the past 35 years? As a citizen, can I sue the previous director of IRB for loss of revenue for the country in all those years?
It is rather harsh and unfair for IRB in this case. If IRB wanted to change their interpretation of the law, guidelines should be issued for the parties involved and they should be given a grace period to adapt to the changes.
TAX EVADING DOCTOR