Audits no longer a chance game
TAX audits are increasing in frequency and intensity. The consequences, if one is not prepared, can be very costly since the penalty for income tax of at least 45% has become the norm whenever there are tax adjustments. From 2018, the penalty will be increased to 100%. The recent joint announcement that Royal Malaysian Customs Department (Customs) and the Inland Revenue Board (IRB) will jointly undertake audits on all companies in the country in an effort to plug leakages in the system, shows the increasing seriousness of the government to go after the tax defaulters. The “wait and see if they catch me” approach in the current climate is not advisable.
New Chiefs – New Approach Both IRB and Customs have new chiefs. Both gentlemen, Datuk Seri Subromaniam Tholasy and Datuk Sabin Samitah, were appointed about eight months ago. From the very beginning they have been very focused on harnessing their resources towards increasing the number of tax audits and using data analytics to pick cases such that their level of accuracy in identifying tax defaulters is significantly increased.
They have introduced many new programmes to increase the audit coverage. Customs introduced the Customs Blue Ocean Strategy 3.0 to cover about 200,000 out of the 433,000 Goods & Services Taxregistered companies, and IRB on its part has intensified its audits through various operations such as Ops Saji (targeting the food industry) and, soon, it intends to audit professionals such as doctors, engineers, etc.
On the ground you can see it in action as the number of audits have significantly increased and the timeline to close cases is becoming shorter (i.e. less than four months for income tax, less than 90 days for GST).
IRB officers now have begun calling taxpayers to answer their queries faster rather than waiting for replies through correspondence. To date both the agencies are on target to meet their 2017 targets of RM127 billion (IRB) and RM42 billion (Customs – GST only) respectively. How do you prepare?
Ensure the tax returns you have filed over the past five years in the case of income tax, and six years in the case of GST, are in accordance with tax laws. If you are uncertain on the tax positions you have taken in your tax return, please have them reviewed by a tax professional and if you need to refile your tax returns, do so voluntarily to benefit from lower penalties.
Records supporting your transactions (e.g. agreements, internal memorandums, external correspondence, invoices, budgets, ledgers and sub-ledgers, bank accounts, etc) need to be retained for the past seven years as they are absolutely crucial when defending your tax position: both facts surrounding the transactions and legal basis.
Since the burden of proof on the tax positions taken rests on the taxpayer, the upper hand is with the tax authorities as they have the right to ask for whatever information they think is relevant and this can be very extensive and, if they are not satisfied, they will raise assessments or demand notices and you will have to pay first and appeal to the courts later.
It could be a long wait to get back your money!
During the audit, please cooperate with the tax authorities and provide them the information they require and educate them on your business so that they understand the business reasons underlying the tax positions taken.
Do not overload them with irrelevant facts, statements and materials as this can lead the auditors to stray away from the issues at hand and it can lead them to wrong conclusions, which will be very time consuming to turn around.
In the case of audits of any business enterprise, it is advisable to have a qualified tax professional present to assist you in handling the audit and observing the proceedings to help explain your tax positions from a legal angle as they should be well versed with the law.
Finally my advice is: Prepare early as the chances of being audited have increased substantially in 2017 and will increase further in 2018.
The writer is the managing director of Crowe Horwath Tax Sdn Bhd and a trustee of the Malaysia Tax Research Foundation. Busy Weekly, Asia Weekly,
What has been the biggest challenge you have faced and what did you learn from it?
Malaysia’s greatest brand. “Made in Malaysia” is Malaysia’s greatest brand. When we look at China, where food safety issues are a big concern, we realise the nation’s brand building is very important. So Malaysia by itself is one of the greatest brands especially, in the export of processed food.
A must-read for every business owner/manager is? For me, it is the teachings of Konosuke Matsushita (founder of Panasonic).
What are the top three factors you would attribute your success to? First is financial control, second is people, lastly is a management system, to ensure there is sustainability in the business.