Tax audits leave much to be desired
I HOPE the new Pakatan Harapan Government will review the way the Inland Revenue Board (IRB) carries out tax audits.
In order to achieve its revenue target, IRB is resorting to the use of Section 140 (Power to disregard certain transactions) of the Income Tax Act and disregards taxpayers’ record and explanations for certain issues and expenses.
IRB officers are not basing their audits on Section 33 (Adjusted income generally) and Section 39 (Deductions not allowed) of the Act. Instead, they use their own computations and estimates to determine the tax presumed to be underpaid.
For example, using their own benchmark (set by their Compliance Department) for gross profit margin, they claim that taxpayers have understated their income because the gross profit margin of their business is not in compliance with their benchmark.
Businessmen who would rather earn a lower gross profit in exchange for higher volume of sales are being victimised in this way and are forced to pay additional taxes and penalties.
IRB is disregarding the expenses of taxpayers and suspecting that certain expenses are armslength transactions just by giving a few examples of errors in the entry out of the hundreds and thousands of transactions, and giving the excuse that it is using Section 140 to recompute the tax.
At the end of the audit, taxpayers are forced to sign a document stating that they agree with the IRB’s computations, essentially admitting that they have underpaid their taxes.
Imposing penalties of up to 45% (and recently, there’s been a suggestion to increase this to 100%) of tax undercharged is rather highhanded when the audit is carried out this way.
IRB may have been pressured to collect more revenue by carrying out more audits to offset the previ ous government’s abuses in expenditure, and it has declared breaking the revenue collection record year after year. But it does not realise that it is slowly but surely killing the “goose that lays the golden eggs”.
I would suggest that IRB goes back to practising the official assessment system rather than the selfassessment method because the process of auditing is being abused and has created too many little Napoleons, making it very difficult to do business in Malaysia.
THE GOOSE IS DYING Melaka