Common Tax Offences in Malaysia

Common Tax Offences in Malaysia

As with any other entities/individuals, companies will have to file tax returns and pay taxes too! Below is a guide on some of the common tax offences that a company will incur if it fails to file its tax return.

Tax Evasion

Tax evasion is a broad category which includes:

• Failing to pay taxes;
• Making false statements i.e. giving false information while filling out your tax;
• Making false statements when tax officers request you to furnish them with additional information in regard to your tax;
• Falsifying books of account/record;
• Prepare and maintain or authorize the preparation and maintenance of false books of account; and
• Make use of devices to make false statements.

What happens if a company is found guilty of tax evasion? The law specifically states that if you are found guilty, you will “…be liable to a fine of not less than one thousand ringgit and not more than twenty thousand ringgit or to imprisonment for a term not exceeding three years or to both, and shall pay a special penalty of treble the amount of tax which has been undercharged in consequence of the offence or which would have been undercharged if the offence had not been detected”.

Filing Incorrect Statements

This usually occurs when a company:

• Understates/omits the income that needs to be declared while filing taxes; or
• Gives incorrect information that might affect the amount of taxes the company has to pay.

The law specifically states that unless the company can prove that the incorrect statements were genuine mistakes, the company (assuming when found guilty) shall “…be liable to a fine of not less than one thousand ringgit and not more than ten thousand ringgit and shall pay a special penalty of double the amount of tax which has been undercharged in consequence of the incorrect return or incorrect information or which would have been undercharged if the return or information had been accepted as correct.”

Failing to Keep Records

The law makes it clear that a company has to keep sufficient records for a period of seven years from the end of the year to which any income from that business relates, to enable that income from that business for each year of assessment or the adjusted loss from that business for the basis period for any year of assessment to be readily ascertained by an officer from the Inland Revenue Board of Malaysia (IRBM) that the taxes the company filed/declared is accurate. These records can include:

• Books of account recording receipts and payments or income and expenditure;
• Invoices, vouchers, receipts and such other documents as in the opinion of the Director General are necessary to verify the entries in any books of account; and
• Any other records as may be specified by the Director General.

Failing to do so, the company shall “…be liable to a fine of not less than three hundred ringgit and not more than ten thousand ringgit or to imprisonment for a term not exceeding one year or to both.”

Obstructing IRBM Officers from Performing Their Duties

This includes offences such as when a company:

• Obstructs or refuses to permit the entry of the IRBM officers into any land, building or place as ordered for them to access any relevant documents to ascertain the accuracy of the tax filed;
• Obstructs or refuses to permit the entry of the IRBM officers from performing their duties;
• Refuses to produce any book or other document in the company’s custody or control on being required to do so by IRBM officers;
• Fails to provide reasonable facilities or assistance while the IRBM officers are performing their duty; or
• Refuses to answer any question relating to any of those purposes lawfully asked by the IRBM officers.

If a company is found guilty of obstruction, the company shall “…be liable to a fine of not less than one thousand ringgit and not more than ten thousand ringgit or to imprisonment for a term not exceeding one year or to both.”

Therefore, if you ever own a company, hopefully, the brief article above helps you/reminds you that you have to file the company’s annual tax return properly, or risk committing the offences above.

Frequently Asked Questions (FAQ)

1. What counts as tax evasion under Malaysian law?

Tax evasion is a broad category which includes failing to pay taxes, making false statements, falsifying books of account, and making use of devices to make false statements. A company found guilty faces a fine of between RM1,000 and RM20,000, or imprisonment not exceeding three years, or both, plus a special penalty of treble the amount of tax undercharged.

2. What if incorrect information in my tax filing was a genuine mistake?

The law provides some leeway if the company can prove the incorrect statements were genuine mistakes. Otherwise, the company faces a fine of between RM1,000 and RM10,000 and a special penalty of double the amount of tax undercharged as a result of the incorrect return or information.

3. How long must a company keep its tax records?

A company must keep sufficient records — such as books of account, invoices, vouchers and receipts — for a period of seven years from the end of the year to which the income relates, so that IRBM can readily verify the accuracy of the taxes filed.

4. What happens if I refuse to cooperate with an IRBM officer during an audit?

Obstructing or refusing IRBM officers entry to verify documents, refusing to produce books or documents, or refusing to answer their lawful questions is an offence. A company found guilty of obstruction faces a fine of between RM1,000 and RM10,000, or imprisonment not exceeding one year, or both.

5. What’s the penalty for simply failing to keep proper tax records?

Failing to keep sufficient records for the required seven-year period is punishable with a fine of not less than three hundred ringgit and not more than ten thousand ringgit, or imprisonment for a term not exceeding one year, or both.

Other Related Articles:

• What is Paid-up Capital in Malaysia?
• Type of Company Director in Malaysia
• Paid-Up Capital 101: All You Need To Know About Paid-Up Capital in Malaysia
• Register Your Sole Proprietorship or Partnership Business in Malaysia