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This article was published in Focus Malaysia on 23rd March 2019.

http://read.focusmalaysia.my/ePaper/xml_epaper/Focus/23_03_2019/pla_1_Standard/xml_arts/art_35460.htm

 

Inland Revenue Board (IRB) deputy director-general, Datuk Mohd Nizom Sairi, was quoted in February as saying: “The IRB will continue to encourage more taxpayers to come forward because this could be the first and the last opportunity for them, where the government allows them to clear their tax record and start afresh for year of assessment 2018, like a clean slate.”

The Special Voluntary Disclosure Programme (SVDP) is part of the government’s effort in reforming the tax system to encourage taxpayers to come forward on a voluntary basis to disclose their previous undeclared income and settle tax arrears up to Dec 31, 2017.

The basic premise here is good faith by both parties, the IRB and the taxpayer. IRB director-general Dato’ Sri Sabin has reiterated that the IRB will accept the declaration made in good faith and no audit or investigation will be carried out in the future for the period in which the declaration was made.

The majority of the 225,000 or more taxpayers who have come forward are individuals. Companies appear to be hesitating in using the SVDP. Why is this the case and what is behind their thinking?

Why are companies hesitating?

There are three different scenarios for this:

1) The majority of the companies take the view that since their tax computations have been done by tax agents, all is OK.

2) Companies that have taken positions which are debatable feel that they can hold on to their positions.

3) Companies are aware that the positions taken by them are incorrect, but they are prepared to take the “catch-me-if-you-can” attitude.

Many directors may not be aware of the seriousness of being detected after the SVDP ends on June 30, 2019. At the board level, discussions on SVDP are minimal or non-existent. This is due to the lack of the understanding of the benefits and the consequences post-June 30. The management itself may not have understood the benefits in order to keep the board informed.

The benefits of SVDP

Any disclosure here will provide you a clean slate up to Dec 31, 2017.

In a majority of the companies that are audited by the IRB, tax adjustments leading to additional assessments frequently arises due to lack of documentation, timing issues, interpretational issues, compliance requirements (withholding tax, standard deduction of tax for employees, submission of incorrect returns, etc.), incorrect applications of the tax rates and capital allowance rates, not being up-to-date with the changes in the tax laws, etc.

Experience indicates that majority of the companies being audited end up receiving additional assessments. The SVDP will avoid lengthy audits and save you time and resources in digging up documentation to support a company’s positions and thereafter spending time negotiating with the IRB.

Common issues

Among the common issues that companies should consider bringing into the SVDP:

  • Withholding taxes on digital payments to non-residents (royalty vs technical services)
  • Withholding taxes on other payments to non-residents
  • Treatment of capital gains vs revenue income
  • Accruals vs provisions
  • Domestic sourced vs foreign sourced income
  • Transfer pricing issues
  • Compliance with tax incentives
  • Claims for reinvestment allowances, capital allowances, and other claims
  • Deductibility of interest expenses
  • Group relief matters
  • Deductibility of expenses
  • Anti-avoidance matters
  • Non-stamping of documents
  • Real Property Gains Tax matters relating to holding period

The benefit of good faith

The biggest benefit under SVDP is the willingness of the IRB to give the taxpayer the benefit of doubt and the willingness to listen as opposed to a situation in an audit where the authorities are out to “catch you”.

Under the SVDP, if your documentation is incomplete for certain periods to support a transaction that is recurring over a long period, the benefit of doubt will be given to the taxpayers on the basis that the taxpayer is exercising good faith.

Any negotiations or discussions on the SVDP are far more cordial and the IRB officials are also willing to help you satisfy the SVDP requirements.

In fact, experience has shown that the IRB officials are proactively helping taxpayers who have come forward for an SVDP.

This is an opportunity that should not be wasted by companies.

Will SVDP put the company on the radar?

The answer is no. Entering the SVDP will only add credibility to the taxpayer because you have come in voluntarily to declare your undeclared income.

In the future, when the IRB is selecting taxpayers for audits, the chances are taxpayers who have come for the SVDP will be favourably treated as opposed to those who have not used the SVDP.

Entering the SVDP shows that you wish to be a compliant taxpayer in the future, and that is exactly what the government and tax authorities want all taxpayers to exhibit.

Will IRB backtrack on its promise?

Based on the assurances of the finance minister and the IRB director-general, we should accept their statements in good faith.

Going back on their word in the future will be very detrimental to the government and such an action will affect the economy of the country.

No responsible government in the future would ever think of going back on their promise.

Time for decision has arrived

There are only three months left for companies to use the SVDP to their benefit. This is a very short period for companies to identify the issues, collect the supporting information, analyse the risk level, and to bring it to the management and board level for discussion and decision.

Normally if a group of companies is to carry out a SVDP thoroughly, it is likely to take them anywhere between one to three months.

The IRB will need approximately one to two weeks to review the information, do a high-level check on the credibility of the information supplied, and finalise the SVDP.

Do not wait, start the process.