In this article, we will take a closer look at the consequences individuals and businesses may face when failing to adhere to tax laws in the country. This sheds light on the potential tax offences and penalties in Malaysia, offering valuable insights in order to help taxpayers navigate the complexities of tax compliance in the country.
Commonly occurring tax offences and penalties in Malaysia
1. Failure to File Taxes
If your annual income exceeds the taxable threshold, it is mandatory to report your entire income to the Inland Revenue Board of Malaysia (IRBM). Neglecting this requirement can result in penalties ranging from RM200 to RM20,000, imprisonment for a term not exceeding 6 months, or a combination of both. Disregarding this requirement leads to a similar penalty being imposed on individuals with a business income, individuals with a non-business income, and corporations.
Furthermore, it is crucial to adhere to the tax filing deadlines or you can be subject to penalties, as outlined below:
- Individuals with a business income: Paying taxes after June 30th incurs penalties as specified by tax authorities.
- Individuals with a non-business income: If taxes are paid after April 30th, you could face a 10% increment from the tax payable, and an additional 5% increment on the balance if the payment has not been made within 60 days after the final date.
- Corporations: Companies in Malaysia must submit their corporate income tax return within seven (7) months of closing their accounts. Tax payable must be paid by the last day of the seventh month after closing the accounts. If the balance of tax payable is not paid by the due date, a 10% penalty will be imposed on the outstanding amount.
2. Underreporting Income
Misrepresenting your income and claiming a lower amount than what you genuinely earn can lead to (unlawfully) reducing your tax liability. However, this action carries the risk of fines ranging from RM1,000 to RM10,000. Additionally, you will be required to pay 200% of the tax undercharged amount that was inaccurately reported.
Underreporting income can occur inadvertently if you are not fully aware of the types of income subject to taxation. In addition to employment income, taxable sources include rental income, dividends, and royalties.
3. Claiming Tax Reliefs Excessively
Utilizing tax reliefs can lead to substantial tax savings, but it’s crucial to exercise caution when declaring them. Overstating your tax reliefs solely to minimize tax liabilities is not advisable. If you lack the necessary documentation to substantiate your claims, you may face penalties ranging from RM300 to RM10,000, imprisonment for a term not exceeding 1 year, or both.
When declaring a tax relief, ensure you possess vouchers, receipts, or any supporting documents for verification purposes. It’s prudent to retain these documents for a minimum of seven years as a record-keeping practice.
4. Failure to Maintain Proper Records
Failure to maintain proper records in the context of taxation refers to the inability or negligence of individuals or businesses to maintain accurate, complete, and organized financial records and documentation related to their financial activities, income, expenses, and transactions. Individuals who fail to maintain proper records may face challenges during tax audits, potential penalties, and back taxes.
5. Tax Evasion
Tax evasion refers to the illegal and deliberate act of evading the payment of taxes that an individual or business is legally obligated to pay. It involves a range of deceptive and fraudulent activities aimed at reducing tax liabilities or concealing taxable income to avoid taxation. The penalties for a person involved in tax evasion include criminal charges, substantial fines, and imprisonment.
6. Assist Others in Tax Evasion
Assisting another person in tax evasion refers to willfully and with a deliberate intent to evade tax, either for one’s own financial benefit or to aid another individual or entity in avoiding tax obligations and responsibilities as mandated by the relevant tax authorities. You may face penalties for helping another person with tax evasion ranging from RM1,000 to RM20,000, imprisonment for a term not exceeding 3 years, or both, and 300% of the tax undercharged.
The types of tax offences and penalties in Malaysia
| Classification of Offences | Provisions Under ITA 1967 | Penalty Imposed |
| Failing, without a valid and justifiable reason, to provide an Income Tax Return Form. | 112 (1) | Fines ranging from RM200 to RM2,000, imprisonment for a term not exceeding 6 months, or both. |
| Failing, without a valid and justifiable reason, to provide notice of tax liability. | 112 (1) | Fines ranging from RM200 to RM2,000, imprisonment for a term not exceeding 6 months, or both. |
| Submitting an inaccurate tax return by either omitting or understating any income. | 113 (1) (a) | Fines ranging from RM1,000 to RM10,000 and 200% of tax undercharged. |
| Providing incorrect information in matters that influence the tax liability of a taxpayer or any other individual. | 113 (1) (b) | Fines ranging from RM1,000 to RM10,000 and 200% of tax undercharged. |
| Deliberately and with the intention of avoiding or aiding another individual in avoiding tax obligations. | 114 (1) | Fines ranging from RM1,000 to RM20,000, imprisonment for a term not exceeding 3 years, or both, and 300% of tax undercharged. |
| Helping or counseling others to underreport their income without exercising due diligence or reasonable care. | 114 (1A) | Fines ranging from RM2,000 to RM20,000, imprisonment for a term not exceeding 3 years, or both. |
| Making an effort to depart the country without settling tax liabilities. | 115 (1) | Fines ranging from RM200 to RM2,000, imprisonment for a term not exceeding 6 months, or both. |
| Interfering with the duties of any authorized officer of the Inland Revenue Board of Malaysia (IRBM). | 116 | Fines ranging from RM1,000 to RM10,000, imprisonment for a term not exceeding 1 year, or both. |
| Failing, without a valid justification, to adhere to an order mandating the maintenance of accurate records and documentation. | 119A | Fines ranging from RM300 to RM10,000, imprisonment for a term not exceeding 1 year, or both. |
| Failing, without a justifiable reason, to adhere to a notice requesting specific information as mandated by the Inland Revenue Board of Malaysia (IRBM). | 120 (1) | Fines ranging from RM200 to RM2,000, imprisonment for a term not exceeding 6 months, or both. |
| Failing, without a valid justification, to provide notice of changes in address within a three-month timeframe. | 120 (1) | Fines ranging from RM200 to RM2,000, imprisonment for a term not exceeding 6 months, or both. |
Our Assistance
Premia TNC offers services that help you understand the tax offences and penalties in Malaysia and ensure that you stay on top of your tax obligations.
FAQs
Q1: When does a Malaysian company need to complete its first tax filing?
A: When a company starts its operations, it should register for a tax file. Within three months of commencement, it must estimate its tax payable and begin tax instalment payments from the sixth month. Additionally, companies must submit their income tax return within seven months of closing their accounts.
Q2: What is the existing corporate tax rate in Malaysia?
A: With a paid-up capital of RM2.5 million or less and a gross income from business of not more than RM50 million, it does not control, directly or indirectly, another company that has paid-up capital of more than RM2.5 million, and it is not controlled, directly or indirectly, by another company that has paid-up capital of more than RM2.5 million, which is eligible for preferential tax rates: 15% on the first MYR 150,000, 17% on the next MYR 450,000, and 24% thereafter. Non-resident companies have a flat 24% tax rate, regardless of capital.
Q3: Who should register for an individual income tax number?
A:
a) Individuals with single status who receive employment income of more than RM34,001 per year (after EPF deductions)
b) Individuals who are married and unemployed spouses who receive employment income more than RM46,001 per year
c) Individuals who run a business (even if the business suffers a loss)
d) Individuals who are new employees subjected to Monthly Tax Deduction (STD)
e) Individuals with taxable income
f) Individuals who buy or sell real estate
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