What is the Difference Between Tax Avoidance & Tax Evasion in Malaysia
Tax avoidance, unlike tax evasion, is legal and must be differentiated from tax evasion.
- Tax avoidance may occur through the use of specific provisions found within in a taxation system. These provisions allow taxpayers find to use methods within the law by which they will reduce the amount of tax which they pay
- Tax avoidance is the legal reduction of tax obligations and maximization of post-tax income using legal methods
- Tax evasion uses illegal methods to avoid paying proper taxes, but tax avoidance uses legal ways to lower the obligations of a taxpayer
Here are some of the possible examples of tax avoidance include:
Businesses avoid taxes by making legitimate tax deductions, using tax credits, and shielding income from taxation by setting up employee retirement plans. Many tax experts lower taxes for their clients without breaking the law by using such methods.
Punishments for Tax Crimes in Malaysia
In Malaysia, the war on tax criminals has been ongoing for many years. Measures have been implemented by the LHDN to combat such acts of tax evasion.
According to Malaysian tax crime laws, a fine will ensure that the offender pays what was left unpaid, but if the offender is also found to be also guilty of official charges, the official may be sentenced to a jail term.
The Malaysian government’s strategy in its punishment of tax criminals is primarily intended to punish those who would under-declare their income or avoid filing tax returns.
The LHDN has four approaches in dealing with non-compliance:
1. Used on those who would otherwise not comply with the tax laws of Malaysia
In such instances, the LHDN would use the full force of the law by way of legal recovery actions or forced deductions over sources of funds, among other methods.
2. Identity detection
This is done by way of identification of the offender’s employer so that deductions may be imposed.
3. Used with regard to those who try to comply but do not always succeed in doing so
The LHDN assists such people by identifying the employer and impose deductions as well as sending automatic letters to employers in order to educate them.
4. Used on those who are willing to do what is right
The LHDN assists their compliance by way of proactive telephone calls, education, the sending of automatic letters, and text-message reminders.
Other punishments which may be imposed by the LHDN include, among others:
Prevention of an offender from leaving the country
Seizures of property
Bankruptcy proceedings against individuals
Winding-up action taken against companies
Tax Compliance in Malaysia
To avoid committing a tax crime, you must be compliant to the tax laws and be familiar with the Malaysia’s taxation system.
Not only must you know about the tax laws, but you must also keep sufficient records of all income and expenses which are directly related to tax obligations.
As a taxpayer of Malaysia, you will need to:
Complete the registration process in order to register as a taxpayer
Submit tax returns by or before the due date
Pay tax liabilities by or before the due date
Report tax liability correctly by correctly declaring income, expenditure, and tax reliefs and deductions
Advice: If payment is overdue, an individual is subjected to face a penalty of 10% of tax payable!
There are over fifteen different categories of tax forms in Malaysia. The form to be used depends on whether the tax to be paid is being paid by an individual or company.
Forms for companies are divided into three categories:
The filing and returning of these income tax forms is usually done via online. Individuals or companies may either opt to do so on their own or employ the services of an expert for the same purpose.