This article first appeared in The Edge Financial Daily on February 6, 2018
KUALA LUMPUR: After stepping up efforts to crack down on tax evaders last year, the Inland Revenue Board (IRB) will try to cause minimal disruption to businesses while carrying out its duty this year.
This means fewer field audits or raids, according to the tax authority’s chief executive officer (CEO) Datuk Seri Sabin Samitah.
But this does not mean the IRB is slowing down its efforts to increase tax compliance. Rather, it means the requirement for field audits will be less as the IRB’s data matching processes have improved, said Sabin. Hence, more desk audits will be undertaken instead.
“This year, we are going to reduce the number of raids because we don’t want to disrupt the [businesses of] taxpayers. Our data matching now [has improved], so we have lots of information without going to the house or business premises. Our profiling is now much better than [in] the previous years.
“Maybe certain cases involving the underground economy [would require tax raids],” he told reporters at a news conference yesterday in conjunction with the IRB’s high tea with the media.
Examples of “underground economy” activities include illegal gambling, illegal moneylending and vice activities.
Sabin also dismissed the notion that the fewer tax audit visits the IRB is planning for 2018 is due to complaints from businesses last year. Further, he said while visits to premises by the IRB will be fewer, the number of desk audits will increase.
“We are not reducing our tax compliance activities this year. In fact, the number of letters we have issued so far to taxpayers who are to be audited was higher in January 2018 compared with January 2017,” he said.
In January this year, the IRB issued 155,152 audit letters, up 2.1% from the 151,955 letters it issued in January 2017.
The IRB launched a number of operations last year to ensure tax compliance by individuals and businesses, such as Ops Patuh, Ops Dakwa, Ops Saji and Ops Mega. As a result of that, it slapped tax demands on many listed corporations such as MK Land Holdings Bhd, Magnum Bhd, MMC Corp Bhd and Aeon Credit Service (M) Bhd, to name a few.
Priority on leakages from transfer pricing
This year, Sabin said the IRB’s focus will be on specialised industries such as banking, insurance and finance.
“Leakages from transfer pricing by certain corporations will be the priority for tax compliance this year.
“Our focus will also be on companies that are involved in aggressive tax-planning activities, in particular those that transfer their profits to low-tax regimes just to avoid paying the taxes due in Malaysia,” he said.
During the launch of Ops Mega last November, IRB deputy CEO (compliance) Abdul Manap Dim shared with the press that Ops Mega would include the audit of 15 banks, which are mostly foreign banks that have offshore transactions — for example, those with transactions in Labuan.
When asked for updates on this, Sabin said: “Some of the banks have come voluntarily to make an offer for settlement, but this pertains to their transactions with their offshore companies in Labuan. We are purely looking at transfer pricing issues here, [so] we are not encroaching on the central bank’s duties and responsibilities.”
The tax rate in Labuan is much lower, at 3% of net profit as per the audited accounts of the company or at a fixed rate of RM20,000, on the choice of the company, as opposed to the corporate tax rates of between 18% and 24%, in accordance with the Income Tax Act 1967.
For 2018, the IRB is targeting a tax collection of RM134.7 billion, which is 6% more than its 2017 target of RM127 billion. As for the total amount of tax collected in 2017, Sabin said it was up 8.15% compared with 2016.
“I can’t let you know the figure because the finance [ministry] has not made the announcement yet,” he said.
It was reported that the IRB collected RM114.015 billion in taxes in 2016. Going by that, an 8.15% increase in tax collection in 2017 would work out to be RM123.307 billion.