Tax amnesty offer may miss target
IRB voluntary disclosure move gets ‘positive’ response
PETALING JAYA: Malaysia’s tax amnesty programme introduced by the Pakatan Harapan government may not achieve its target as it inches closer to its deadline in less than two weeks’ time.
Tax experts have cited fears of legal action and complacency among taxpayers as the top reasons for the lower-than-expected voluntary tax declarations.
The Special Voluntary Disclosure Programme (SVDP), which will come to an end on Sept 30, was introduced in Budget 2019 to coax tax defaulters to voluntarily declare any unreported income, including in offshore accounts, by promising a low penalty rate of only 10% to 15%.
The tax amnesty offer was to have ended in June this year, but was extended to Sept 30.
The SVDP was initially expected to collect Rm10bil from at least one million tax defaulters by June 30.
However, it was reported earlier that only 486,360 cases of voluntary tax declaration were recorded under the SVDP as of June 23.
A source said the one million taxpayers target is highly unlikely to be met, while penalties paid under the programme could exceed Rm5bil.
When contacted by Starbiz, a spokesperson for the Inland Revenue Board (IRB), however, said that the response for the SVDP among taxpayers has been “positive”, although she declined to provide further details on the outcome.
“We will disclose the full figures once the programme ends in less than two weeks’ time from now,” the spokesperson said.
According to taxation lawyer S. Saravana Kumar, many taxpayers were reluctant to participate in the SVDP despite the government’s offer of a lower penalty as compared to a minimum penalty rate of 45% and up to a maximum of 300% after the end of this programme.
“There is no legal certainty. The Finance Minister has said that there would be no audits on the declared amount and only a penalty of 10%-15% would be imposed.
“But that may not be the case. One of my clients who participated in the programme was audited and was imposed a penalty of 45%, with no reason given by the IRB,” he said.
Meanwhile, Tax Advisory and Management Services Sdn Bhd tax consultant Yong Min Jie said the response from taxpayers had been good until June, but had slowed down later.
“People are worried that action may be taken against them once they come clean under the SVDP, although the IRB has provided guarantee that no action would be pursued,” he said.
Yong pointed out that the SVDP is not the only option for the government to reduce tax evasion by Malaysians.
Moving forward, the Automatic Exchange of Information (AEOI) initiative by the
Organisation for Economic Cooperation and Development would be a key approach in identifying tax evasion and capturing the unpaid taxes, he said.
For perspective, Malaysia has started receiving financial information specifically with regard to offshore banking accounts beginning September 2018 due to the AEOI.
“Participating countries under the AEOI would share information with Malaysia about Malaysians with offshore accounts. This would help reduce tax evasion significantly.
“Since last year, I think the government could have raised Rm3bil to Rm4bil in penalties imposed on tax defaulters with the help of the AEOI.
“Over the next one year, the taxman could make an additional Rm2bil to Rm3bil,” said Yong.
However, he cautioned that tax evaders may shift their funds to the AEOI’S non-participating countries to avoid being under the radar.
“That said, with the taxman’s continued measures, tax evaders would eventually be identified,” he stated.
Saravana Kumar said the AEOI would enable tax authorities worldwide including the IRB to have access to cash and assets held by a person in another country.
“However, we cannot be overzealous and abuse the AEOI by using it as a tool for a fishing expedition.
“There are also taxpayers who keep their legitimate income in foreign bank accounts for various reasons such as for children’s education,” he said.
Commenting on the possible ways for the government to increase its tax collection, Saravana Kumar said there must be a concerted effort to increase the tax scope to cover a broader tax base.
“Additionally, there must be a review and streamlining of the many tax incentives which we have in Malaysia. This would help the government focus on the right segment of the economy which would benefit from the appropriate tax incentives.
“There must also be more prosecution of tax evaders with custodial sentence for tax evaders. This would send the message that the government means business to tax evaders,” he said.
Meanwhile, Yong mooted the idea of removing tax exemptions on foreign income.
“For example, some put their money in Hong Kong and call it foreign income. Hong Kong may also look at it as foreign income since it’s owned by a Malaysian. In the end, no tax is paid on the amount.
“The Malaysian government should only give tax exemptions on foreign income if the taxpayer had declared it in any other country,” he said.