Tax Investigation

Tax investigation is an examination of taxpayer’s business and / or individual books, records and documents. This examination is to ensure that the correct amount of income has been reported and tax thereon paid in accordance with the tax laws and provisions. The investigation will only be carried out in cases where it is suspected based on precise and definite evidence that the taxpayer is deliberately trying to avoid paying tax or has committed an act of willful evasion under ITA and other Act such as Real Property Gains Tax Act 1976, Petroleum (Income Tax) Act 1967, Promotion of Investments Act 1986, Stamp Act 1949 and Labuan Offshore Business Activity Tax Act 1990.

Objective of Tax Investigation

Tax investigation activities act as a deterrent against tax evasion, and

• Ensure the correct amount of tax is collected;
• Ascertain the person responsible for the offence, to pursue criminal prosecution; and
• Enhance voluntary compliance with tax laws and regulations.

Investigation Categories

Investigation activity carried out is of two categories which are as follows:

1. Civil Tax Investigation

Civil tax investigation activity involves detection of tax evasion. The primary concern being recovery of tax loss and imposition of heavy penalties.

2. Criminal Tax Investigation

Functions and work procedures involving criminal tax investigation are similar to that of civil investigation. However with criminal investigation, focus is on gathering admissible evidence with a view towards prosecution and conviction of the tax evader for commission of offences pursuant to ITA, Penal Code (Act 574), Criminal Procedure Code (Act 593), Evidence Act 1950 (Act 56) and other relevant Acts.

The tax investigation carried out by IRBM will be a surprise visit to taxpayer’s business premises, personal residences, agent / representatives and various third parties’ premises. The investigation will be conducted in a professional, courteous, fair and reasonable manner in accordance with the provisions and regulations of the ITA.

Penalties

If there is omission or understatement of income as a result of investigation, penalties will be imposed based on the provisions of
Sections 112, 113 and 114 of the ITA.

1. Under section 112(3), a penalty treble to the amount of tax undercharged (300%) is exigible;

2. Under section 113(1) 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 (200%);

3. Or as provided for under section 113(2), a penalty equal to the amount of tax undercharged (100%) can be impose; and

4. Section 114 ITA stipulates a fine of not less than RM1,000 and not more than RM20,000 or to imprisonment for a term not exceeding 3 years or both, and shall pay a special penalty of treble the amount of tax.

folder_open   Information on Taxes in Malaysia