THE Inland Revenue Board Malaysia (LHDN) has issued a new Tax Investigation Framework 2020 to replace the Tax Investigation Framework issued on May 15, 2018.
The new framework, which took effect on Jan 1, 2020, is aimed at informing taxpayers about LHDN’s tax investigation procedures.
In general, the framework outlines the rights and responsibilities of officers, taxpayers and tax agents; assists taxpayers to fulfil their obligations, and informs taxpayers of the legal provisions relating to a tax investigation.
These are the key points.
Request for Documents and Information
An investigation can be carried out by issuing letters requesting documents and information from the taxpayer, tax agents and third parties.
The taxpayer may be required to give information and an oral explanation at LHDN offices.
LHDN officers may also visit the taxpayer’s business premises with a written notification given prior to the visit.
Investigations can also be carried out by making an inspection visit without prior notice to the taxpayer’s business premises, residences, tax agent’s premises, third parties and other premises as necessary.
Examination of Documents
The LHDN officer will inspect the taxpayer’s business documents and/or personal documents. The inspection is to gather evidence of tax evasion and request any party to produce documents in his custody or control.
At least two LHDN officers will be present during the recording of statements from persons related to the case being investigated. Qualified lawyers can be present during the recording of statements as well.
Finalisation of Investigation
After completion of the investigation procedures, LHDN will issue a letter to the taxpayer confirming the finalisation of the investigation.
If a settlement is agreed upon, an agreement or letter of the undertaking will be signed.
The investigation is considered finalised after the case is approved by the DG of LHDN and an assessment is raised. Taxpayers who have been investigated will be monitored by LHDN.
If the taxpayer does not agree with the investigation findings, the DG may, according to the best of his judgement raise an assessment with a penalty.
Cases which are to be prosecuted will be forwarded to the legal department. Failure of a taxpayer to attend court proceedings after the summons is served may result in a warrant of arrest being issued.
Offences and Penalties
Failure to furnish, return or give notice of chargeability
Under subsection 112(1) of the Income Tax Act 1967 (ITA), taxpayers who fail to furnish the Income Tax Return Form (ITRF) for one year of assessment shall on conviction, be liable to a fine of not less than RM200 and not more than RM20,000, or imprisonment for a term not exceeding six months or both.
Whereas under subsection 112(1A), taxpayers who fail to furnish the ITRF for the period of two years of assessment or more shall, on conviction, be liable to a fine of not less than RM1,000 and not more than RM20,000, or imprisonment for a term not exceeding six months or both.
The taxpayer shall also pay a special penalty of three times the amount of tax which has been undercharged.
If no prosecution has been instituted in respect of failure to furnish a return or give notice of chargeability, the DG may require the taxpayer to pay a penalty three times the amount of tax which has been undercharged as under Section 112(3) of the ITA.
Making incorrect return by omitting or understating any income of which the taxpayer is required to make a return on behalf of himself or another person, or gives any incorrect information in relation to any matter affecting his own changeability to a tax of any other person is an offence under Section 113(1) of the ITA.
Taxpayers guilty of the offence shall, on conviction, be liable to a fine of not less than RM1,000 and not more than RM10,000 and shall pay a special penalty of double the amount of tax which has been undercharged.
If no prosecution has been instituted in respect of the incorrect return or incorrect information, the DG may impose a penalty equal to the amount of the tax which has been undercharged as under Section 113(2) of the ITA.
Under Section 114(1) of the ITA, the taxpayer guilty of the offence shall, on conviction, be liable to a fine of not less than RM1,000 and not more than RM20,000, or imprisonment for a term not exceeding three years or both, and shall pay a special penalty of three times the amount of tax which has been undercharged.
Investigation under Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATFPUAA).
Failure to furnish ITRF (Section 112 of the ITA), make incorrect returns (Section 113 of the ITA) and wilful evasion (Section 114 of the ITA) are listed as serious offences under Second Schedule of the AMLATFPUAA.
LHDN may take action to deter, detect and investigate cases of money laundering related to serious offences.
Upon conviction of money laundering offence under Section 4 of the AMLATFPUAA, a person shall be liable to imprisonment for a term not exceeding 15 years and shall also be liable to a fine of not less than five times the sum or value of the proceeds of unlawful activity or instrumentalities of an offence at the time the offence was committed or RM5 million, whichever is the higher.
Investigation under AMLATFPUAA and investigation under ITA may be conducted separately or concurrently.
LHDN officers may exercise powers under AMLATFPUAA such as:
- Enter any premises without a search warrant.
- Search the premises for any property, record, report or document.
- Inspect, make copies of or take extracts from any record, report or document.
- Take possession of any property, record, report or document seized and detain it for a period deemed necessary.
- Search any person who is in, or on such premises.
- Break open, examine and search any article, container or receptacle.
- Stop, detain or search any conveyance.
- Break open any outer or inner door of such premises or conveyance.
- Remove by force any obstruction to such entry, search, seizure, detention or removal.
- Detain any person found on such premises, or in such conveyance until the search is completed.
- Order any person believed to be acquainted with the facts and circumstances of the case to attend before the LHDN officer for examination.
- Arrest without warrant a person suspected to have committed or to be committing any offence under AMLATFPUAA.
- Issue an order to freeze any property, such as bank accounts, of any person who is suspected of committing a serious offence.
Responsibilities of taxpayer investigated under AMLATFPUAA:
- Allow the LHDN officer to access any premises and submit to the search of his person.
- Attend before the LHDN officer for examination.
- Answer any question put to him by the LHDN officer.
- Furnish any information or statement as requested by the LHDN officer.
- Cooperate and comply with any lawful demands by the LHDN officer in the execution of his duties.
- Not to conceal and to give the LHDN officer any property, record or information which may reasonably be required of him and which he has in his power to give.
- Not to destroy any property, record, report or document in order to prevent its seizure or the securing of the property, record, report or document.
A person who fails to comply, if convicted under section 34 of the AMLATFPUAA, shall be liable to a fine not exceeding RM3 million or imprisonment for a term not exceeding five years or both.
In the case of a continuing offence, he shall be liable to a further fine not exceeding RM3,000 for each day during which the offence continues after conviction.