Tax Audit
A fair, transparent and equitable tax administration
system will enhance public confidence in the tax system.
Compliance with tax laws must be strictly enforced and tax
offences such as noncompliance and tax evasion should be
penalized in accordance with the provisions of the Income
Tax Act 1967 (ITA).
A tax audit is an examination of a taxpayer’s business
records and financial affairs to ascertain that the amount
of tax due should be reported and paid are in accordance
with tax laws and regulations.
Tax Audit Objectives
The main objective of tax audit is to encourage voluntary
compliance with the tax laws and regulations and to ensure
that a higher tax compliance rate is achieved under the Self
Assessment System. In this regard, the audit officer is
required to ensure that the correct amount of income is
reported and the right amount of tax is paid in accordance
with the tax laws and regulations.
For the purpose of achieving voluntary compliance, the tax
audit activity is one of the measures undertaken by IRBM to
educate and
create awareness of taxpayers towards their rights and
responsibilities under the provisions of the ITA.
Under the Self Assessment System, tax audit is a primary
activity of the Inland Revenue Board of Malaysia (IRBM). It
is aimed at enhancing voluntary compliance with the tax laws
and regulations. A taxpayer can be selected for an audit at
any time. However, it does not necessarily mean that a
taxpayer who is selected for an audit has committed an
offence.
Tax Audit Types
IRBM carries out two (2) types of audit, namely desk audit
and field audit.
1. Desk Audit
A desk audit is held at the
IRBM’s office. Desk audits are
normally concerned with straightforward issues or tax
adjustments which are easily dealt with via correspondence.
A taxpayer may be called for an interview at
IRBM’s office
if further information is required.
Generally, a desk audit involves checking all information on
income and expenses as well as various types of claims made
by a taxpayer in his income tax return. Specific desk audit
cases can be referred for field audit action. Under such
circumstances, the taxpayer will be informed through a field
audit notification letter as part of the normal process of
commencing the field audit.
2. Field Audit
A field audit is one that takes place at a taxpayer’s
premise. It involves the examination of the taxpayer’s
business records. In the case of a sole-proprietorship or
partnership, if the taxpayer’s business records are
incomplete it may involve the examination of non-business
records such as personal bank statements, etc. A taxpayer
will be given notice prior to a field audit.
In general, this tax audit framework is applicable to both
types of audit, namely desk audit and field audit with the
exception of visit to premises and examination of records
which are only applicable to field audit.
Offences and Penalties
1. If it is discovered during an audit that there has been
an understatement or omission of income, a penalty will be
imposed under subsection 113(2) or 112(3) of the ITA in
which the penalty equal to the amount of tax undercharged
(100%) or equal to treble the amount of tax payable (300%)
respectively. However, the Director General of IRBM in exercising his
discretionary powers may consider a lower penalty of 45% to
be imposed for the first offence.
2. The concessionary penalty rates may be imposed in cases
where the taxpayer makes a voluntary disclosure. As such the
taxpayer is encouraged to make a voluntary disclosure
regarding the omitted income before the commencement of an
audit. This disclosure must be made in writing to the
relevant Branch Director of IRBM.
3. The concessionary penalty rates for voluntary disclosure
are as follows:
| Period from the date of submitting return form | % | |
|
Voluntary disclosure before case is selected for audit |
Less than 1 year | 15 |
| 1 year to less than 3 years | 20 | |
| 3 years and above | 30 | |
| Voluntary disclosure after tax payer has been informed but before the commencement of the audit visit | 35 | |
4. For each repeated offence, the rate of penalty shall be
increased by 10% as compared to the last penalty rate
imposed for the previous offence but limited to a sum not
exceeding 100% of the amount of tax undercharged.
folder_open Information on Taxes in Malaysia