Tax Audit Framework Finance and Insurance 2020 Tax Audit Framework Finance and Insurance 2020 Tax Audit Framework Finance and Insurance 2020

The Malaysian Inland Revenue Board (“MIRB”) has issued an updated Tax Audit Framework Finance and Insurance (“the Framework”) which replaces the Tax Audit Framework Finance and Insurance dated 1 June 2015. The Framework comes into effect on 18 November 2020.

The updates made under the Framework amongst others are that the MIRB will issue a letter ‘Surat Memohon Dokumen dan Maklumat’ to the taxpayer by official e-mail, fax or mail to acquire documents and information. In the case of a field audit, a letter ‘Surat Pemberitahuan Lawatan Pematuhan’ will be issued to the taxpayer at least 14 calendar days prior to the date of visit, notifying the details in relation to the field audit. In the absence of an audit visit, a letter ‘Surat Penentuan Permulaan Tempoh Penyelesaian Kes’ will be issued to the taxpayer to inform the commencement date for computation of the audit case settlement period.

We also wish to highlight below the notable updates to the Framework which is in line with the Tax Audit Framework 2019:-

• The MIRB may visit any of the taxpayer’s premises or related premises by advance notification.

• Audit examination may be extended to related/controlled companies or businesses.

• In the event of collection of taxpayer’s original documents and records, a list and acknowledgement of receipt of the documents and records shall be provided by the audit officer. The list shall be signed by the audit officer and the taxpayer or tax agent.

• Shorter time frame for taxpayer to object to the MIRB’s audit findings (i.e. 18 days instead of 21 days);

• Shorter time frame for settlement of a tax audit i.e. 90 calendar days instead of 120 calendar days from the commencement date of audit visit or the date of the Surat Penentuan Permulaan Tempoh Penyelesaian Kes is issued, whichever applicable for cases in relation to business activities related to financial leasing, factoring, credit card services, stock broking, stocks and bonds, financial market services and operations / other financial intermediaries, business as a broker, agent and adjuster;

• Penalty may be imposed under subsection 113(2) of the Income Tax Act, 1967 (“ITA, 1967”) equivalent to the tax undercharged (100%) in the event of an understatement or omission of any income as a result of the audit findings. For the purpose of the Framework, a penalty of 45% on the tax undercharged is imposed for offence under subsection 113(2) of the ITA,1967. However, the Director General may use his power under subsection 124(3) of the ITA,1967 to abate or remit the penalty imposed;

• Penalty of 55% on the tax undercharged will be imposed on repeated offence by taxpayer after having undergone audit or investigation. Repeated offence in this case is in relation to a taxpayer who has been audited or investigated and the original or additional or composite assessment with penalty under subsection 113(2) of the ITA, 1967 was raised. The first offence to be accounted for is from the date of the notice of assessment raised beginning 1 January 2020.

• Penalty of 35% on the tax undercharged will be imposed for offence under subsection 113(2) of the ITA, 1967 for voluntary disclosure cases made more than six months from the due date for submission of income tax return form.

In view of the above updates, it is important for taxpayers to continue to enhance the quality of their documentation and accounting records and effectively evaluate their readiness to be selected for audit at any time. This is critical to avoid being imposed a hefty penalty.

Taxpayers may choose to manage this issue by undertaking a tax risk assessment to have a better understanding on their tax position. 

Regards,

Soh Lian Seng
Executive Director
Head of Tax Dispute Resolution 

KPMG Tax Services Sdn Bhd

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