THE proposal to introduce a new provision, Section 106A, to the Income Tax Act 1967 was passed through the Finance Bill 2021 in the Dewan Rakyat on Dec 15.
Section 106A grants power to the director-general of the Inland Revenue Board of Malaysia (LHDN) to call for information on bank accounts for the purpose of making a garnishee order application.
Many have wrongly interpreted the true intention behind the introduction of this new section, however. Their simple interpretation is that LHDN can now ask for one’s bank account information and use it to collect additional taxes from them.
It is important for Malaysian taxpayers to understand what Section 106A is all about. The power to call for bank account information must be for the purpose of making garnishee order application, which is the process of enforcing a money judgement by the seizure or attachment of debts due or accruing to the judgement debtor that form part of his property available in execution.
This means that civil proceedings must have been instituted against a person, and a judgement has been obtained against that person, for LHDN to be able to obtain the bank account information from financial institutions. The purpose of obtaining the bank account information is for LHDN to make the application to the court for a garnishee order (i.e. to recover tax due and payable by the person to the government). Section 106A does not permit or extend the power of the LHDN DG to obtain such information for other purposes.
In addition, Subsection (2) prohibits the financial institution from disclosing to any person that such a request was made. This does not mean LHDN has a free hand to ask for a taxpayer’s bank account information from financial institutions in “secret” or without the latter’s knowledge. Taxpayers are still protected by the respective banking secrecy laws, such as the Personal Data Protection Act 2010.
There are also a few other observations that can be made from Section 106A. The “Financial Institutions” in question here only cover the banks (including Islamic banks and development financial institutions). This shows that the new power granted to the LHDN DG does not extend to investment accounts with asset managers, fund managers and life insurers.
Another important point is the term “bank account information”. It is unclear which bank account falls under the purview of the request to be made under this new section, i.e. would it be confined to the savings and current accounts? Would LHDN consider the financing accounts/loan accounts that the taxpayer need to serve? Would it consider the commitment attached to the bank account, e.g. capital commitment for a loan, standing order to pay bills or staff salaries, etc?
The banks themselves would also need to set up robust processes to address the LHDN’s request for bank account information, including protecting the confidentiality of the request. Failure to do so would expose the banks to a fine of between RM200 and RM20,000 or imprisonment for those involved for a term of six months or both under Section 120A of the Income Tax Act 1967.
In short, the public at large need not be worried by Section 106A. The new power granted to LHDN may not be widely applicable to people on the street who have been complying with their income tax obligations.
MOHD FARIZ , Tax Audit & Investigation executive director Deloitte Malaysia