Malaysia has all the characteristics of good tax system i.e. fairness, equitable and transparent administration of tax to increase public confidence.

This will go a long way to ensure that taxpayers do not avoid or evade tax but rather comply with set tax laws. The government also ensures that those people that evade tax or do not comply are dealt with strictly with hefty fines being charged on them.

The Inland Revenue Malaysia amongst other processes examines a company's financial affairs and business records periodically to ensure that the tax to be reported and paid up is in accordance to tax laws; a process called tax audit.

They can be of two types namely: desk audit and field audit. Tax audit is integral in self assessment since it helps individuals and companies to voluntarily comply with the tax law and regulations. Taxpayers are selected randomly for an audit.

A desk audit is which by and large involves simple issues which can be solved by correspondence is held at IRBM office. On the other hand, field audit takes place in the taxpayer's premises through a tax agent such as YYC Advisors or the taxpayer himself.

This audit entails examining an individual and company's business records and non-business records like personal bank statements if need be. This kind of audit can is carried out after the taxpayer has been served with a notice from IRBM of usually 14 days.

Audit officers' objective is to ensure that the right amount of income is reported and the correct tax therefore paid up to the relevant authorities. To achieve voluntary compliance which is a bit challenging, IRBM undertakes tax audit to educate and create awareness to the taxpayers of their rights as well as obligations as stipulated in the Income Tax Act.

A tax audit may cover review of a taxpayers year of assessment of one year to three years depending with the audit focus. This can stretch further if issues identified during the audit cannot be dealt within the stipulated time frame.

How Am I Selected For an Audit?

Selection of audit cases can be done through a computerized system or through information received by tax administration form various sources. The selection is usually based on the following:

-Risk analysis

-Information from third parties

-Specific category of industries

-Specific issues affecting a certain group of taxpayers or based on geographical location.

Process of tax audit

  • Commence the audit by giving the selected taxpayer a 14 days notification. This period cab be shorter or be prolonged with the agreement with the taxpayer in question. It is worth noting that the notification also contains the records to be availed, names of the audit officers, years to be audited as well as timeframe for the audit visit.-Actual visit. The officers obtain an overview of the individual business activities as well as the accounting system employed in the business.

  • Records examination. The officers examine all relevant materials and records to verify claims made i.e. business records and non-business records where applicable. The officers cannot carry the materials but can only make copies where deemed necessary.

  • Timeframe of the tax audit. Basically the time that is required for on-site examination of records is two to three days. The timeframe can be more depending on the size of business, complexity of business, level of cooperation from the taxpayer and form of record keeping.

  • Settlement of audit. After conclusion of audit, the officers prepare findings of the audit carried out to be approved by the Branch Audit Manager. The taxpayer is informed of the findings which include; audit issues raised, reasons and rationale for raising the issues, amount of proposed tax adjustments if any as well as years of assessment. The taxpayer will give his views and explanations in regard to the findings and the proposed tax adjustments.

  • If the individual is not satisfied with the proposed tax adjustments he should file an official objection within 14 days giving any other material information and copies of evidence to support the objection.
  • If the taxpayer agrees with the proposed tax adjustments he will be served with a notice indicating the penalty imposed. The set time in which a tax audit should be completed is three months from the date of commencement.

  • Audit officers should be professional with unquestionable level of integrity, knowledgeable on all matters that pertains tax audit as well as ensure that the interests and rights of the taxpayers and tax agents like YYC Advisors are safeguarded.

  • Taxpayers should always be cooperative and provide all the necessary materials and records to facilitate the tax audit.

  • Inland Revenue Malaysia should ensure that all information obtained in the process of tax audit is kept confidential and should only be used for tax purposes.

  • Penalties and taxes arising from a tax audit should be paid to DGIR through a collection branch of Inland Revenue Malaysia or appointed banks.

  • The payment should be in full but in the event that the taxpayer is not in a position to settle the whole amount at once, he may apply to Inland Revenue Malaysia so that he can be allowed to settle the total tax liability in installments for a predetermined timeframe.

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