Consider tax amnesty instead of much higher penalties, IRB urged

KUALA LUMPUR: The Inland Revenue Board (IRB) can emulate the success of the Indonesian government in implementing a tax amnesty initiative for taxpayers, said Grant Thornton Malaysia.

“Our IRB should also ponder similar policy and have tax amnesty for a period of six months with a 15% tax rate for previously undeclared income. This rate compares favourably with the current corporate tax rate of 25%. IRB will then not only be increasing the tax revenue for this year but also for the long-term increase in the tax base and revenue,” said Grant Thornton Malaysia country managing partner Datuk N.K. Jasani.

The tax amnesty by the Indonesian government was announced early last year. It lasted for nine months, from July 1, 2016 to March 31, 2017, and was a whopping success in terms of money collected from tax dodgers.

The tax amnesty targeted and succeeded in bringing money previously parked offshore back into the Indonesian economy. This will have a lasting effect as the remitted funds create a multiplier effect on the domestic economy.

As reported in The Economist in its April 1, 2017 issue, more than 800,000 evaders declared US$350 billion (RM1.5 trillion) in assets. The government collected substantial additional tax revenue. More pertinently, the main benefit for Indonesia was substantially increasing the number of tax payers and the tax base for the future.

Jasani said there is a need to increase Malaysia’s tax base for more equitable and sustainable tax revenue collection.

The recent announcement by IRB director-general Datuk Sabin Samitah to enforce harsher penalties for income tax dodgers signals the intention of the IRB on going after chronic or hardcore tax defaulters.

“Many would see this as being overzealous in the current tough Malaysian economic situation,” said Jasani.