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The Sun Daily: Collecting taxes without denying taxpayer rights

Repost of publication on The Sun Daily on 8 March 2021.
THE government of Malaysia has been generously supporting businesses and the rakyat through various stimulus packages announced in 2020 and 2021. Apart from the RM322 billion expenditure allocated in Budget 2021, a further RM330 billion worth of economic stimulus packages were provided.

One of the important sources of financing the above "giveaways" will come from the income tax collection which is expected in 2021 to be in the region in RM144 billion versus the actual collection in 2020 of RM123 billion. In the current economic climate, this will be a big challenge for the Inland Revenue Board (IRB), especially when 2021 has kicked off on a weak note with various forms of lockdowns.

Attempting to collect increased taxes in the current situation requires delicate handling. Lately, it is becoming evident that IRB, in its desire to collect taxes, has been intensifying and increasing the level of audit and investigation activities.

Whilst it is their absolute right to examine taxpayer returns and identify taxpayers who have not complied with the tax laws or have underpaid their taxes or taxpayers who have not filed any tax returns, etc, taxpayer rights, especially to be heard, should not be denied.

The taxpayer should be given all the opportunities to provide explanations to the issues raised by the IRB. It is clearly stated in the Tax Audit Framework that IRB will explain any tax adjustments and provide reasonable time for the taxpayer to give responses to the issues raised and ensure the rights and interests of the taxpayer and tax agent are safeguarded.

Time should be given to listen to taxpayer

There is no objection to the IRB having internal guidelines on the expected timeline to complete an audit or investigation. This is just good practice for internal productivity purposes.

Since these cases can go back five years for income tax and seven years for transfer pricing matters, collecting information, and recollecting the events that transpired to support the economic activities during those years will require time beyond the usual 14 or at the maximum 21 days provided by the IRB to reply to their enquiries. It is common practice of the IRB to provide an extension of time, but such extensions are sometimes inadequate to fully explain the taxpayer's perspective.

Some of these records may be in archives or if they are in a softcopy form, the data in those records may be corrupted or the accounting systems may have changed and will require software experts to retrieve the lost data.

There are other circumstances where the taxpayer requires more time to retrieve information and recollect the events especially cases involving capital statements which requires scrutinising entries in bank accounts, credit card statements, mutual fund statements, share transactions, director accounts, etc.

There are increasingly occasional circumstances where the tax officials inform taxpayers that a case has gone on based on the internal guidelines beyond a particular period, and therefore the case is abruptly brought to a close, and at times, without providing a final set of findings to the taxpayer and giving him an opportunity to answer.

The impact is severe on taxpayers since the taxpayer must pay the tax within 30 days of the issuance of the assessment. Appeals to the court are time consuming and expensive.

Recommendation

Although the country needs an increase in tax collection, hastening the audit or investigation process without providing the full opportunity to listen to taxpayers will be unproductive to both the country and the IRB because businesses are already in financial difficulties and making them pay taxes on disputable assessments will only antagonise taxpayers.