Tax audits involve a visit by the Inland Revenue Board (IRB) officer to business owners ("tax payer") corporate premises to review tax payer's operation, financial records and other supporting documents which substantiate the position taken in the tax return.
Tax audit is required to ensure that tax payers report the correct amount of income and pay the right amount of tax which is computed in accordance with the tax laws and regulations. For the government, it works as an enforcement tool ensuring that the Self Assessment System is strictly complied with to prevent any loss of revenue of the government.
The Self Assessment System is a process requiring tax payers to compute, report and pay the right amount of tax by themselves or with the help of a tax consultant.
If that happens, you are subjected to a penalty equal to the amount of tax undercharged (100%) or equal to triple the amount of tax payable (300%).
There is actually no way to avoid the penalty but Director General of Inland Revenue (DGIR) has the discretionary power to abate the penalty. It is recommended to keep a full set of records and accounts to avoid any misunderstanding in the tax audit process.
You can obtain further information by reading the "Framework for Tax audit" published in the IRBM website ( www.hasil.org.my ), or consult a tax consultant.
The main areas covered in the guideline are as follows:
(i) The main objectives of audit.
(ii) The basic procedures involved in a tax audit.
(iii) The rights and responsibilities of IRBM, taxpayers and tax agents.
(iv) Complaints and appeal procedures.
(v) Penalty and offence.
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