This article first appeared in The Edge Malaysia Weekly on December 25, 2017 - December 31, 2017

THE Inland Revenue Board (IRB) launched “Ops Mega” — its largest operation this year — on Nov 20, drawing on the strength of 23 tax departments, 12 state tax offices, 37 tax branches, 17 tax investigation branches and 4,219 of its 11,000-strong workforce in the country in a final push to attain its targeted RM127 billion collection for 2017.

At the time, roughly 85% or RM109 billion had reportedly been collected throughout the year, which meant that Ops Mega would have an “unspoken” target of nearly RM20 billion, double the average achieved monthly so far this year.

Phase one of Ops Mega involves the audit of 15 local and foreign banks with offshore dealings in Labuan for “potential transfer pricing” due to the lower tax rates enjoyed by entities in the federal territory versus those in Peninsular Malaysia. Potential collection “could be huge” and be “somewhere in the hundred million range”, IRB deputy CEO (compliance) Abdul Manap Dim reportedly said.

The IRB is also perceived to be casting its net wide — armed with an increased government allocation of RM2.2 billion for 2018, up from RM1.6 billion in 2016 and RM1.1 billion in 2013.

Ops Mega is the latest in a string of operations announced this year to raise tax awareness, compliance and collection. Others include “Ops Gegar Bersepadu” (instant millionaire/tax dodgers), “Ops Kutip” (tax arrears), “Ops Patuh” (awareness, tax dodgers), “Ops Saji” (food-related businesses) and “Ops Dakwa” (large companies). IRB chief Datuk Sabin Samitah, who has been with the IRB for over 30 years, also had his auditors and investigators look into any under-reporting of taxes by professionals, including doctors, lawyers, architects and engineers.

At least nine public-listed companies and their subsidiaries have been served letters for additional taxes and penalties totalling nearly RM3 billion.

Most of the companies are presenting their side of the argument to arrive at an amicable settlement with the IRB. Tenaga Nasional Bhd, which took the IRB to court over a RM2.07 billion tax bill for differences involving reinvestment allowance relief, in December 2016 switched the judicial review proceedings with an appeal to the Special Commissioners of Income Tax (SCIT).

Cocoaland Holdings Bhd successfully appealed its case and managed to cut the RM5.89 million additional tax and penalty bill (for assessment years 2010 to 2014) stated in an Oct 19 letter to RM14,847 on Dec 12.

While the IRB is only doing its job by going after tax dodgers, the fervour and frequency with which tax audits and operations seem to be happening lately have sparked more discussions on whether companies and individuals are being pushed too hard at a time the cost of living and doing business has increased significantly.

Tellingly, there are only 2.27 million individual taxpayers in Malaysia (excluding the Goods and Services Tax), which is about 15% of the country’s 15 million labour force (14.58 million employed). The 2.27 million individual taxpayers also comprise only 10.6% of the 21.4 million people above the age of 19 in Malaysia.

And this relatively small pool of people generate about 13% of government revenue — going by projected individual income tax collection. From 2012 to 2014, their contribution was about 11%.

Individual income tax collection is expected to reach RM30.09 billion in 2017 (13.35% of government revenue) and rise further to RM32.23 billion in 2018, the year when the number of individual taxpayers may fall a little with the monthly income threshold at which individuals start paying taxes having been raised to RM3,100 from RM2,851.

Similarly, only 168,244 companies pay taxes, Deputy Finance Minister Datuk Othman Aziz told Dewan Rakyat last month.

And corporate income taxes, which made up 25% of government revenue in 2012, have contributed 30% to government revenue from 2014. Corporate tax collection is expected to rise from RM63.6 billion in 2016 to RM67.8 billion in 2017 and RM72.48 billion in 2018, accounting for 30.2% of government revenue.

While paying taxes is one’s duty towards nation-building, actions perceived to cause excessive disruption to businesses may influence long-term investment decisions as well as whether a country can remain attractive enough to keep the desired talent pool. This is something that some analysts and economists have begun pondering over the past two years. Some experts have asked that policymakers engage the business community and tax experts and do a comprehensive review of the tax and incentive system to remain competitive in the new economy that requires different skill sets and new investments.

There’s no denying the IRB’s importance to the country’s growth — direct taxes, which the IRB is tasked with collecting, make up 53% of total government revenue. (GST, which comes under the Customs Department, makes up another 18% to 19% of government revenue.)

Second Finance Minister Datuk Seri Johari Abdul Ghani, who is a former corporate chief, rightly points out that the IRB is also doing Corporate Malaysia a favour by going after the “black economy”, and that companies have avenues to appeal their case to the SCIT or file a judicial review in court.

Only time will tell if the majority of individual and corporate taxpayers agree with him that “there is no such condition as being overly taxed”. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.