“Voluntary disclosure? Why should I bother?” “I would not so lucky to be audited!”, “IRBM would send my information to another enforcement agency to go against me if I joined this voluntary disclosure.”; “Can I trust this initiative of the new government?” All these are common perceptions among taxpayers when discussing on the special voluntary disclosure programme. Are these statements true? Let’s Explore….
Let’s look at this scenario; you are a “Nasi Lemak” restaurant owner and definitely you have to register with Companies Commission of Malaysia (SSM) and you need the licenses with the local council. In addition, when you buy a vehicle for your business, you would need to liaise with banks to obtain your hire purchase loan, your records are automatically filed with the banks, insurance company and IRBM have access to all this information. If somehow you have a credit card and you always spend unnecessarily beyond your means, you would also trigger the system.
There are a lot of methods for IRBM to counter check which could trigger citizens who are at a high-risk level. The top 2% of high-risk citizens would trigger the IRBM officers to conduct field audit and investigation followed by the next 18% of high-risk citizens. This process would repeat itself and whether you like it or not, you might get audited at least once in a 5-year period. Do you still believe that you won’t be so “lucky” to be audited? If you’re unaware, audit and investigation has become one of IRBM’s core activity when Self Assessment System (SAS) was fully implemented in the Malaysian tax system w.e.f. 2001?
You are Under Surveillance! IRBM is Ready!
Inland Revenue Board of Malaysia (IRBM) is a member of the Global Forum and has begun receiving financial information from abroad ever since. In addition, Malaysia has implemented an Automated Exchange of Information (AEOI) with foreign tax authorities initiated by the OECD on Common Reporting Standards. Through this initiative, information on substantial ownership of assets such as banks and properties are among the information that can be assessed by IRBM. If this does not match with the tax that they have declared, it would trigger the IRBM’s sophisticated system.
Following the 2019 Budget announcement by the Finance Minister of Malaysia on 2nd November 2018, the government launched a Special Voluntary Disclosure Programme (SVDP) to allow taxpayers to voluntarily declare any unreported income for Malaysian tax purposes, including that which is in offshore accounts.
The voluntary disclosure may be made at any time between 03 November 2018 until 30 June 2019. Taxpayers will enjoy a low tax penalty rate of 10% and 15% during this period. This will prove as a check and balance of the income received and then declared for tax purposes.
The breakdown of the penalty rates is as follows:
Furthermore, IRBM has enough information in hand, using big data and third-party information sharing, to know the income position of a taxpayer, even without them submitting their tax forms. Hence, taxpayers should grab the opportunity presented through the SVDP, to come forward and start on a clean slate, about their tax matters. According to Section 112 (Failure to furnish return or give notice of chargeability), Section 113 (Incorrect returns) and Section 114 (Wilful evasion) of the Income Tax Act 1967, if found guilty for the payment thereof shall be guilty of an offence and shall, on conviction, be liable to a fine of not less than two hundred Ringgit and not more than two thousand Ringgit or to imprisonment for a term not exceeding six months or to both.
In addition, you may be investigated and charged under money laundering offence since tax offences has been officially included as one of definition of serious offence under Schedule 2 of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds from Unlawful Activities 2001 (AMLTFPUAA) along with other 356 offences from the schedule. If found guilty, shall be liable to imprisonment for a term not exceeding 15 years and shall also be liable to a fine of not less than 5 times the sum or value of the proceeds of an unlawful activity or instrumentalities of an offence at the time the offence was committed or five million ringgit, whichever is higher. Not only that, individuals who like to flaunt their wealth online also need to beware as IRBM has a special unit who will review these individuals whether they have declared their income and how far their wealth is at the part with their records.
Take It or Leave It
This Special Programme covers voluntary disclosure and payment within the stipulated period on a few items which include
i. Income not previously declared / under-declared, expenses over claimed / not allowed and reliefs / deductions / rebates over claimed;
ii. Gains on disposal of assets (real properties and shares in real property companies); and
iii. Stamping of instruments not previously stamped.
In addition, the following taxpayers are eligible for voluntary disclosure under this Special Programme:
i. Taxpayers who are not registered with the IRBM;
ii. Taxpayers who are registered with the IRBM but have not submitted the Income Tax Return Form (ITRF) / Petroleum Return Form (PRF) / Real Property Gains Tax Form (RPGTRF) for any year of assessment;
iii. Taxpayers who have submitted the ITRF / PRF / RPGTRF but have not reported the correct information on the income/disposal of an asset(s) for any year of assessment; and
iv. Persons who fail to stamp executed instruments after six (6) months from the stamping period (30 days from the date of execution of the instrument).
Worried? Do you want to be compliant?
The programme is in line with the government’s aspiration of prospering the citizens. Therefore, the programme aims to reduce the burden on taxpayers and assist them in settling their tax obligations. The Tax Reform Committee, set up by the Ministry of Finance in September 2018, proposed the SVDP as part of the tax reformation initiative in Malaysia, specifically to address issues of (i) tax leakages; (ii) narrowing the tax gap; and (iii) diversifying the nation’s revenue stream. Furthermore, as a member of the Global Forum of Tax Transparency and Exchange of Tax Information, Malaysia has implemented the Common Reporting Standard and beginning 30 September 2018, Malaysia has started receiving financial information of taxpayers from foreign tax administrators. Therefore, the programme acts as a motivation for taxpayers to voluntarily come forward and make a declaration, which will be received in good faith by IRBM and will not be subjected to further scrutiny. This programme is not unique to Malaysia and has been implemented by tax administrators such as the US, Japan, South Africa and Indonesia.
Through this special programme, taxpayers can voluntarily submit/disclose their unreported income in any of IRBM Branches all over Malaysia. Taxpayers who are not registered with the IRBM would first have to register for an income tax reference number and thereafter submit the ITRF/ PRF/ RPGTRF for the relevant years of assessment. Taxpayers who are registered with the IRBM but have not submitted the ITRF / PRF / RPGTRF are required to submit the ITRF / PRF / RPGTRF for the relevant year of assessment. Taxpayers who have submitted the ITRF / PRF / RPGTRF but have not reported the correct income/profit on disposal of an asset(s) for any year of assessment can make the voluntary disclosure in writing or via e-mail, stating the undisclosed income/gains of assets not reported previously. As a reference for taxpayer’s, the operational guidelines have been uploaded at IRBM’s official portal www.hasil.gov.my. Moreover, IRBM is aggressively promoting the programme to disseminate information on the importance of the programme. Amongst the steps taken include:
i. Publicity through mass media and social media
ii. Issuing Media Releases.
iii. Conducting Media interviews.
iv. Organising Seminars and small group discussion.
v. Continuous Engagement events with the public.
vi. Continuous Engagement events with Media.
Behavioural Insights and the Compassion of IRBM
In order to assist taxpayers, IRBM has applied the principles of EAST in behavioural insights. First, IRBM is compassionate to make the process of voluntary disclosure easy. IRBM reduces the ‘hassle factor’ of taking up the voluntary disclosure. During the process of voluntary disclosure, the taxpayers just need to draft a simple letter or a statement stating the earnings or expenses that they would like to disclose. In the letter, IRBM would monitor the amount of the disclosure and not the source of income. Taxpayers can note down terms such as service tender or trading as the source of income. IRBM would accept the information in good faith and no further questions would be asked. In enhancing the service to serve voluntary taxpayers, all IRBM staffs are well equipped with the knowledge to help the taxpayers.
In addition, IRBM helps to provide a stress-free environment to the taxpayers during the SVDP period. The taxpayers would receive feedback on the total amount of tax payable within 2 weeks from the date of submission. IRBM understands that the process of audit and investigation are stressful to the taxpayers. Hence, IRBM offers a friendly environment so that the taxpayers can handle the disclosure efficiently and effectively.
The offer of taking up this voluntary disclosure is considered as the golden opportunity of once in a lifetime. The offer is attractive, and it has never happened before. The offers are almost impossible to resist – 10% penalty before 31 March 2019 and 15% of the penalty before 30 June 2019. This exercise gives an opportunity to the taxpayers to start over again with a clean tax record. In order to further explain this scenario, the following is a simple illustration.
Assuming an individual with an income of RM120,000 annually. Previously, he didn’t disclose his rental income which has a cumulative total of RM50,000 annually. When he joined the SVDP, the following is the calculation.
After the 1 July 2019, IRBM would apply full force to enforce the Income Tax Act 1967 and the penalty can reach up to 300%. When the individual under declare of RM 50,000 rental income, it might be ended with the following calculation!
Hence, it is IRRATIONAL if a person refuses to join this golden opportunity! Now, taxpayers can pay as little as RM 1,200 rather than RM 36,000 when they miss this golden opportunity. That is why the Ministry of Finance policy is compassionate to help to reduce the taxpayers’ burden.
IRBM helps taxpayers by sending messages through post and email on this SVDP initiative. In addition, there are also individual taxpayers who willingly to create videos to educate and promote these initiatives. The initiative goes viral and shared by many. The most interesting part is that they are happy to come forward to help any taxpayers should they have difficulties to face the IRBM officers. IRBM’s intention is to help the taxpayers to grab this opportunity to reduce their burden in the near future. In addition, IRB hopes the initiative is supported by the public by sharing this information to parties who might need help.
The SVDP period is more than 6 months. It is enough for the taxpayers to respond in time to the initiative to come forward. IRBM has sent out letters to businesses to inform them about this initiative. In addition, IRBM has been trying to reach out to the taxpayers via various corporate communication channels such as social media, papers and articles. Hence, if you ever read this, help spread to anyone around you.
Consider the Cost and Benefit
IRBM is aware of the major concern of taxpayers, which is the fear of being audited or investigated for the voluntary declaration made. However, IRBM would like to stress, any declaration made during the SVDP period will be accepted in good faith and will not be revisited for audit or investigation purposes. Therefore, the main challenge will be to convince taxpayers about this. The government and the IRBM view excessive tax planning, tax evasion and tax avoidance seriously. Therefore, after the SVDP period, IRBM will not hesitate to use the full force of the tax laws in place on taxpayers who fail to comply in their tax affairs. A minimum penalty of 80% will be imposed after 30 June 2019, and the rate may go up to 300%. Furthermore, IRBM has enough information in hand, through the use of big data and third-party information sharing, to know the income position of a taxpayer, even without them submitting their tax forms. Hence, taxpayers should grab the opportunity presented through the SVDP, to come forward and start on a clean slate, regarding their tax matters.
The benefits of this programme include:
i. An opportunity for taxpayers to resolve any unsettled income tax issues.
ii. The declaration made will be accepted in good faith. Further review will not be made of the reported information.
iii. The lowest penalty of 10% and 15% as opposed to a minimum of 80% and a maximum 300% after the SVDP period.
iv. A one-off programme by the government
IRBM will accept in good faith any voluntary disclosures made during the SVDP period. Further review will not be made of the reported information, the IRBM can assure you on this. In fact, it is the desire of the current government to instil a high voluntary tax compliance culture in the people, where taxes are a community asset and implemented fully through the rule of law concept. As the agency directly entrusted to carry out the SVDP, IRBM will ensure the message reaches the masses and more will come forward to declare.
As for audit, as mentioned before, IRBM has enough means to go after those who fail to comply, and once the programme is over, the IRBM will push forward our enforcement strategies, to curb this uncompliant behaviour from spreading. The move is necessary, as we need to be fair to compliant taxpayers, who diligently carry out their taxpaying responsibilities. Have faith with us and we are here to help all the taxpayers! Lastly, the decision is yours now! Join the Special Voluntary Disclosure Programme before it is too late!
Dato’ Sri Sabin Samitah, CEO, IRBM
Datuk Dr. Leow Chee Seng, Advisor, Humanology Sdn Bhd