Tax Audit Frameworks

The Malaysian Inland Revenue Board (“MIRB”) has issued the following updated tax audit frameworks which come into effect on 1 May 2022:

i.     Tax Audit Framework which replaces the Tax Audit Framework dated 15 December 2019;

ii.     Tax Audit Framework Finance and Insurance which replaces the Tax Audit Framework Finance and Insurance dated 18 November 2020; and

iii.    Tax Audit Framework Petroleum which replaces the Tax Audit Framework Petroleum dated 15 December 2019.

It is noteworthy to mention that the abovementioned frameworks see the rephrase of the two methods of MIRB’s audit review from “audit meja”/ ”desk audit” and “audit luar”/ ”field audit” to “semakan umum”/ ”general review” and “semakan menyeluruh”/ ”comprehensive review” respectively and “cawangan industri khas”/ ”special industry branch” to “cawangan industri khusus”/ ”specific industry branch”.

We also wish to highlight below the significant updates in all the newly issued frameworks:-

  • Voluntary disclosure is only offered to the taxpayer who has submitted the income tax return form
  • The penalty under subsection 113(2) of the Income Tax Act, 1967 (“ITA”) / subsection 52(2) of the Petroleum (Income Tax) Act 1967 (“PITA”) will be imposed under the following rate:-

Offence                                              Rate

1st offence penalty                              15%

2nd offence penalty                            30%

3rd offence penalty                            45%

  • The determination of the tax penalty rate for the first offence or the second offence is referred to the taxpayer’s record on the penalty which has been imposed under subsection 113(2) of the ITA / subsection 52(2) of the PITA from 1 January 2020 to 30 April 2022. If the taxpayer has not been penalised under subsection 113(2) of the ITA / subsection 52(2) of the PITA during the period from 1 January 2020 to 30 April 2022, any audit findings from 1 May 2022 involving the imposition of penalties under subsection 113(2) of the ITA / subsection 52(2) of the PITA shall be considered the first offence (15%). Conversely, if the taxpayer has been penalised under subsection 113(2) ITA / subsection 52(2) of the PITA during the period from 1 January 2020 to 30 April 2022, any audit findings from 1 May 2022 involving the imposition of penalties under subsection 113(2) of the ITA / subsection 52(2) of the PITA shall be considered the second offence (30%).
  • No penalty will be imposed under subsection 113(2) of the ITA / subsection 52(2) of the PITA  for any underpaid or omission of income in respect of the audit findings involving technical adjustments.
  • Technical adjustment refers to the case involving differences in the interpretation of tax legislation determined based on the facts and issues of each case. If the MIRB has issued Public Rulings / Guidelines / Income Tax Practice Notes / Regulations / Tax Orders Income (Exemption) / Income Tax Rules, consideration on the grounds due to the technical adjustments will not applicable.
  • If tax fraud is present in which the taxpayer is found with intent in making incorrect tax reporting, penalty will be imposed under subsection 113(2) of the ITA / subsection 52(2) of the PITA at the rate of 100% on the underpaid tax.
  • Penalty rate under subsection 113(2) of the ITA / subsection 52(2) of the PITA for voluntary disclosure case is 15%. However, if the taxpayer has submitted their first voluntary disclosure through the Amended Tax Return Form and further make an additional voluntary disclosure within six (6) months from the date of last tax return filed, the penalty rate for the voluntary disclosure made is 10%.

The KPMG Tax Whiz and the relevant reading materials can be accessed via the above links.

Petaling Jaya Office

Soh Lian Seng
Executive Director -
Head of Tax and Head of Tax Dispute Resolution
lsoh@kpmg.com.my
+ 603 7721 7019

Bob Kee
Executive Director -
Head of Transfer Pricing
bkee@kpmg.com.my
+ 603 7721 7029

Tai Lai Kok
Executive Director -
Head of Corporate Tax
ltai1@kpmg.com.my
+ 603 7721 7020

Long Yen Ping
Executive Director -
Head of Global Mobility Services
yenpinglong@kpmg.com.my
+ 603 7721 7018

Ng Sue Lynn
Executive Director -
Head of Indirect Tax
suelynnng@kpmg.com.my
+ 603 7721 7271

Outstation Offices

Penang Office

Evelyn Lee
Executive Director -
Penang Tax
evewflee@kpmg.com.my
+604 238 2288 (ext. 312)

Ipoh Office

Crystal Chuah Yoke Chin
Tax Manager -
Ipoh Tax
ycchuah@kpmg.com.my
+605 253 1188 (ext. 320)

Kuching & Miri Office

Regina Lau
Executive Director -
Kuching & Miri Tax
reglau@kpmg.com.my
+6082 268 308 (ext. 2188)

Kota Kinabalu Office

Titus Tseu
Executive Director -
Kota Kinabalu Tax
titustseu@kpmg.com.my
+6088 363 020 (ext. 2822)

Johor Bahru Office

Ng Fie Lih
Executive Director -
Johor Bahru Tax
flng@kpmg.com.my
+607 266 2213 (ext. 2514)