IRB set to tighten enforcement on shadow economy next year

The shadow economy refers to all work activities and business transactions that occur ‘below the radar’


THE Inland Revenue Board Malaysia (IRB) will put more resources in collecting money from the shadow economy activities — where the size is estimated at 21%, or RM300 billion of the country’s RM1.45 trillion GDP.

IRB CEO Datuk Seri Dr Sabin Samitah (picture) said 20% of its total current workforce will be absorbed for enforcement purposes.

“Currently we allocate 60% of our resources towards enforcement, while 40% to educate taxpayers.

“However, from next year, as we are focusing on this segment, we will put 80% of our total officers to do enforcement,” he told media after officiating the Deloitte TaxMax — 45th Series in Petaling Jaya, Selangor yesterday.

The shadow economy refers to all work activities and business transactions that occur ‘below the radar’.

Last month, Finance Minister Lim Guan Eng asked IRB to go after players in this sector.

However, Lim said that it was difficult to estimate the actual size of the shadow economy.

As such, proactive and innovative measures were needed to include this in the taxation system to further boost revenue.

Sabin said as of now, IRB has defined two categories of shadow economy sector — business generated by the locals and the foreigners.

“Among the activities involved Malaysians are money lending, drug dealing and prostitution.

“Whereas, for the foreigners, the main activities involved the usage of business licences in the retail sector, such as at the wholesale market, malls and also at Jalan Tunku Abdul Rahman,” Sabin said.

According to him, IRB officers had gone to the ground to visit these venues, in a way to get more details of the business nature that the retailers are doing.

“We have identified these people. They act like they are only workers but eventually, they are the owners of the business,” he said, adding that IRB has also gathered data from various sources including money exchangers.

He added that this could trace the amount of money converted to the foreign notes that belong to these retailers.

Besides money changing and remittance, IRB had also engaged with banks, local authorities and stamping offices to assist them.

Meanwhile, Sabin said IRB has also started to conduct field audits to track tax evader since October.

“These firms will be given ample time to present us the requested documents for checking before the officers come.

“The audit will be conducted with the permission of the business entity at their premises, or if it has taken too long for them to respond to us with the required files,” he said.

The Finance Ministry’s Special Voluntary Disclosure Programme ended last September had collected up to RM7 billion.

The programme was part of the government’s tax reforms to encourage those who had not declared their taxable income to do so, with a penalty rate of up to 15%.

It was reported that IRB aims to revise the tax collection target to more than RM150 billion for 2019, above the RM147 billion target set earlier in this year’s budget.

In 2018, IRB direct tax collect ion reached a new high of RM137 billion, 11.13% more than in 2017.