2016 tax amnesty in Malaysia
The Malaysian Ministry of Finance announced a tax amnesty program for 2016 in its recalibrated Budget on January 28th. Under the terms of this amnesty, the Malaysian government aims to encourage taxpayers voluntarily to make full disclosure of any undisclosed income they have received and to settle any tax arrears they may have. The program is valid from 1 March 2016 to 15 December 2016. Taxpayers are invited to approach the Inland Revenue Board (“IRB”) to rectify any prior instances of non-compliance with Malaysian tax obligations. As an incentive for voluntary disclosure, the IRB is prepared to reduce any tax penalties which apply, according to a set scale, and to waive any applicable tax increment in respect of the settlement of tax arrears.
Unlike last year, the guidelines used by the IRB to determine whether taxpayers are eligible for these offers now cover any taxpayers who fail to submit their petroleum income tax returns, and any taxpayers who have failed to present chargeable instruments for stamping. Every chargeable person is required to submit a return in the prescribed format for each year of assessment, within the prescribed timeframe, to the Director General. Malaysian companies are required to file their tax returns within seven months from the end of the basis period for that year of assessment, as stipulated under the 1967 Income Tax Act (“ITA”) and the 1967 Petroleum (Income Tax) Act (“PITA”).
Failure to submit returns in time results in a penalty of up to 300% of the amount of unpaid tax. Filing returns incorrectly also attracts a penalty of up to 100% of the amount of tax underpaid. Taxpayers who voluntarily disclose certain information may be offered a reduction in the penalty applicable. Depending on the timing of payment, voluntary disclosure before the commencement of audit, will qualify for a 15-20% penalty reduction.
A tax investigation may be carried out against any taxpayer in respect of tax offences under, amongst others, the 1950 Evidence Act, ITA, Criminal Procedure Code, the 2010 Whistleblower Protection Act and the Anti-Money Laundering, Penal Code, Anti-Terrorism Financing and the 2001 Proceeds of Unlawful Activities Act (“AMLATFPUAA”).
However, under the program, the IRB may consider offering concessionary penalty rates in respect of investigations still pending as of 31 December 2015, where settlement is reached by 31 July 2016; or new investigations commencing from 1 January 2016 onwards, where settlement is reached by 15 December 2016.
Under the Real Property Gains Tax Act 1976 (“RPGT Act”), every chargeable person who disposes of a chargeable asset, and every person who acquires the asset so disposed of, shall within 60 days (or such further period as the Director General may allow) make a return to the IRB in the prescribed format. Furthermore, each tax return that is filed with the IRB must be a true, accurate and full statement of the income received by the chargeable person. Non-filing/ late filing of any disposal of chargeable assets attracts a statutory rate of 300% of the amount of property gains tax payable. The concessionary rates depend on the timing of the payment, but range between 5-8%.
All documents executed in Malaysia, which are categorized as First Schedule items under the Stamp Act 1949, must be stamped within 30 days of execution. All documents executed outside of Malaysia, but subsequently brought into Malaysia, must be stamped within 30 days of arrival into Malaysia. Non-stamping/ late stamping of chargeable instruments results in a statutory penalty rate which is MYR25 or 5% of the tax payable, if the instrument is stamped within three months after the time of stamping, or MYR50 or 10% of the tax payable, if the instrument is stamped later than three months but before six months after the time of stamping, or MYR100 or 20% of the tax payable in any other case. The concessionary rates here are 5% or 10%, depending on the timing of payment. If an offer is made to the taxpayer, the taxpayer will be required to execute a letter of undertaking confirming his admission to the offence committed and his agreement to pay the reduced penalty offered by the IRB. The offer will be revoked in the event that the taxpayer fails to pay the reduced penalty within the prescribed time frame. In addition to the above, the IRB may also offer a full waiver of tax increment to those taxpayers who wish to settle their tax arrears in full under the ITA, PITA or RPGT Acts. The offer for the full waiver may be made provided that the taxpayer fulfils the eligibility criteria under the guidelines, and that any tax due is paid before or on 15 December 2016.
Taxpayers can benefit from this program by ensuring that they are fully tax compliant. Taxpayers should also seek advice and guidance from their financial advisors about any submissions they make.