New tax framework to enhance collection


THE new framework to widen investigation and search powers of the Inland Revenue Board (LHDN) would cast a dragnet and force more people to pay their taxes.

Malaysia has about 15.83 million people employed in the labour force as at November last year, according to the Department of Statistics Malaysia.

Corporates accounted for RM70.4 billion or 51.11% of the total tax collection in 2018, with individual taxpayers at RM36.07 billion or 26.32%.

But the number of Malaysians paying taxes is still low compared to the total labour force.

Former advisory board member of the Malaysian Anti-Corruption Commission (MACC) Tan Sri Megat Najmuddin Megat Khas said despite LHDN having extensive powers, only a small percentage of Malaysians pay taxes.

“I hope with this framework in place, more people with money and good income will start paying their income tax,” he told The Malaysian Reserve.

LHDN issued the latest tax framework early this year, which outlines that an investigation can be carried out by LHDN by issuing letters requesting for documents and information from the taxpayer, tax agent and third party.

Replacing the previous framework, which was issued on May 15, 2018, is among the noticeable changes of the investigation procedures.

LHDN officers may also visit the taxpayer’s business premise with written notification given prior to the visit, including taxpayer’s residences, the premise of a tax agent and related third parties.

Megat Najmuddin, however, stressed that LHDN must exercise their powers judiciously.

“There should not be any abuses of their powers. Recently, it would appear that many powerful politicians were hindering thet MACC, the police and other lawful investigators in their work. It should never be allowed to happen again,” he said.

Thannees Tax Consulting Services Sdn Bhd MD Thanneermalai Somasundaram said the newly introduced tax framework is similar to the old framework, except for the power to conduct surprise visits.

“There must always be an element of surprise because normally, tax investigations are meant for more serious cases of tax evasion or tax avoidance. Therefore, you don’t have to give them a notice to come of fear that they could hide evidence or flee.

“Tax investigations (should) always involve surprise visits by LHDN officers,” he said, adding that the practice was considered reasonable and had been around until the last 18 months.

Somasundram, who is also chairman of the board of trustees of the Malaysian Tax Research Foundation, said the new framework is reintroducing the old practice of surprise visits adopted in other Commonwealth countries, including the UK, Australia, India and Singapore.

Chartered accountants firm Harvey & Associates managing partner Harvindar Singh, however, believes LHDN appears to tone down its powers by having to give prior notice to tax evaders.

“Previously for investigations, they don’t have to inform the taxpayers and could conduct raids out of the blue. Having said that, they have since retained that option in the framework.

“Now, they (LHDN officers) can actually visit taxpayers without giving any notice under the investigation. It’s not something new, that was always practised all the time. Even in the last 30 to 40 years, that was how tax investigations were done,” he said.