Similar to numerous other countries, Malaysia also conducts tax investigations. This process entails examining the business operations of taxpayers and inspecting their individual financial records. Typically initiated through an unannounced visit to the taxpayer’s business premises (which can also include personal residences, agents' or representatives' locations, and various third-party premises), tax investigators will secure the necessary documents and accounting books for investigative purposes.

What is the Main Purpose of Tax Investigations?

Tax investigation, as the term suggests, is a regulatory measure carried out by the Inland Revenue Board Malaysia (IRBM) to verify the accuracy of tax declarations. Its purpose is to scrutinize taxpayers suspected of engaging in fraudulent activities, intentional misrepresentation, or negligence in their income reporting.

Is Tax Investigation Similar to Tax Audit?

A tax audit is a standard and scheduled examination of a taxpayer's financial records to verify their compliance with tax laws and regulations. Unlike a tax investigation, which targets suspected fraudulent activities, a tax audit is conducted with prior notification to the taxpayer. In essence, a tax audit and a tax investigation are distinct processes with different objectives and approaches.

What is Wilful Evasion of Tax?

Wilful evasion of tax refers to any action or deed performed (or done) with the intention of evading or assisting any other person to evade tax:

1. Deliberate omission or understatement of any income from a return;

2. Giving a false answer(orally or in writing) to a question asked or to a request for information made for the purpose of the Act;

3. Falsifying books of account or other records, or authorizing the preparation or maintenance of false books of accounts or other records;

4. Making use of any fraud, art, or contrivance, or authorizing the use of any fraud, art, or contrivance.

How Does Tax Investigation Work?

The Director General of Inland Revenue (DGIR), through Income Tax Act of 1967, has the power to put any taxpayer under “Investigation” and “Tax Audit”. Tax offences such as non-compliance and tax evasion will be charged under the Income Tax Act.

In the case of detection of tax offences such as fraud, wilful defraud or negligence, the IRBM is empowered to conduct:

1. Additional Assessments –IRBM will further investigate your expenditure and income.

2. Heavy Penalties – The penalty will start at 45% and it can go up to 300% depending on the case imposed on taxpayer (Special Penalties, where penalties start at 21%, will be imposed on taxpayer depending on the case).

3. Fines – Another type of penalty that depends on the case imposed on the taxpayer.

4. Jail Term – Omission or understatement of income as well as over-declaration of expenses is considered a criminal offence.

To avoid any potential risks to yourself and your business, it's crucial to ensure compliance and accuracy in all the information provided before filing taxes.

Looking for assistance in coordinating with an IRB officer for tax investigations or audits? Reach out to Low TH & Co, where our team of tax experts with diverse backgrounds is prepared to support you with all your taxation requirements.