The tax laws of Malaysia state the legal boundaries within which all tax-related activities are to be conducted. Violation of any these tax laws is defined as a tax crime and is punishable by law.  

Malaysia Tax Crimes

 

Examples of Tax Crimes 

  • attempting to leave the country without paying all taxes due, 
  • obstructing the performance of duties by any authorized officer of Inland Revenue Board (LHDN),  
  • failure to provide an income tax return form, providing an incorrect tax return by understating or omitting income or facilitating such an act by another person, or 
  • providing false information about the tax obligations of any person in Malaysia.  

An attempt to interfere with the administration of tax laws of Malaysia may be viewed in any of various ways. It could either be viewed as an act of corrupt or forcible interference, an act of forcible rescue of seized property, or an act of defrauding the government of tax revenue. All tax crimes involve the perpetrator’s conspiring to commit an offense against the government by either defrauding it or conspiring to impede or obstruct the taxation process. 

 

Tax Fraud or Tax Evasion 

Tax evasion may also be known as tax fraud. An act of tax fraud occurs when an individual or business entity willfully and intentionally falsifies information on a tax return to limit the amount of tax liability. Tax fraud involves dishonestly filing a tax return in an attempt to avoid paying the entire amount of tax which is owed. It may therefore be defined as the deliberate misrepresentation or omission of data on a tax return. Some examples of tax fraud which may take place in Malaysia are false reporting of income, using a false identity for tax purposes, failure to file an income tax return, refusing to pay taxes, or claiming personal expenses as business expenses for the purposes of reducing one’s tax obligations. 

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Reasons for Tax Evasion 

In Malaysia just as in any other country to which tax revenue contributes much economic benefit, tax evasion harms the government’s efforts to allocate revenue for programs and also impairs its ability to provide desirable social services. Thus, tax evasion hinders economic development. In fact, tax evasion is a key reason behind the high national debt level mentioned in Malaysia’s recent Fiscal Policy Overview Report. 

 

Tax Avoidance VS Tax Evasion 

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 evasion uses illegal methods to avoid paying proper taxes, but tax avoidance uses legal ways to lower the obligations of a taxpayer. Thus, tax avoidance is the legal reduction of tax obligations and maximization of post-tax income using legal methods.   

Some of the possible examples of tax avoidance include charitable donations to an approved entity or the investment of income into specific accounts and mechanisms. 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. 

 

Income Tax Numbers and Forms 

A taxpayer in Malaysia is to obtain an income tax number from the LHDN. The LHDN will then provide the taxpayer with an income tax number so that the taxpayer will be allowed to file income tax. An income tax number is issued to anyone who is required to report income for assessment to the Director General of Inland Revenue. Every income tax number in Malaysia is unique. Companies are to obtain income tax numbers for their foreign workers. However, should they fail to do so, workers may obtain it by themselves from any LHDN office. One may receive an income tax number either manually or online. 

There are 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. These categories are those of the private limited company, limited company, and non-resident company. The filing and returning of these income tax forms is usually done via online means. Individuals or companies may either opt to do so on their own or employ the services of an expert for the same purpose. 

 

Tax Crime Punishments 

In Malaysia, the war on tax criminals has been ongoing for many years. Therefore, the LHDN has announced the measures taken to combat all acts of tax evasion in Malaysia. 

As per the Income Tax Act, any person who has been convicted of tax crime will be punished through a fine, imprisonment, or both depending on the extent and severity of the offenses which have been committed. In order for one to be found guilty of tax crimes in Malaysia, it must be determined that the person involved willfully and intentionally committed the crimes. 

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 termThe 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. The first approach is 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. The second approach is that of identity detection. This is done by way of identification of the offender’s employer so that deductions may be imposed. The third approach is 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. The fourth approach is used on those who are willing to do what is right. The LHDN assists their compliance by way of proactive telephone callseducation, the sending of automatic letters, and text-message reminders. 

Other punishments which may be imposed by the LHDN include prevention of an offender from leaving the country, seizures of property, bankruptcy proceedings against individuals, and winding-up action taken against companies, among other penalties. 

 

Challenges in Dealing with Tax Crimes in Malaysia 

There are a number of challenges which the LHDN faces in dealing with tax noncompliance in Malaysia. There is a need to improve voluntary compliance. Therefore, the LHDN has put in place electronic filing for easy submission, call-in centers to handle inquiries, and automated compound notices sent to non-filers, among other measures. The other challenge relates to tax evasion and fraud. In order to handle this matterthe LHDN has been working with other authorities to refine processes towards criminal investigation, undertaking joint operations with other government agencies, strengthening departments by hiring more officers, and enhancing tax auditors knowledge and expertise. Another challenge is that of limited human resources as well as the enhancement of skills of audit officers. However, each of the strategies used by the LHDN for the purposes of dealing with tax crimes in Malaysia serve to reduce the degree of difficulty associated with doing so. 

 

Overcoming Tax Crimes in Malaysia 

The Malaysian government has been doing much to stamp out illicit financial outflows from wealthy individuals who store their money in illicit accounts. Billions of dollars are lost every year because of such tax crimes. Therefore, there must be greater transparency, more effective information gathering and analysis, and improvements in co-operation and information sharing between agencies and countries to detect and prosecute criminals as well as recover the proceeds of their illicit activities, whether in Malaysia or elsewhere. It should also be noted that there are substantial similarities between the techniques used to launder the proceeds of crimes and those used to commit tax crimes. Thus, there is a close relationship between money laundering and tax crimes. 

Malaysia intends to use data technology to identify tax criminals. The technology will make use of information related to personal spending, property ownership, and lifestyle information according to information divulged by the LHDN. 

 

Tax Compliance 

For the purposes of tax compliance in Malaysia, one must be familiar with a number of laws and practices. Not only must a taxpayer know about the tax laws, a taxpayer must also keep sufficient records of all income and expenses which are directly related to tax obligationsAs a taxpayer of Malaysia, one must 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 dateand report tax liability correctly by correctly declaring income, expenditure, and tax reliefs and deductions.  

By using the tax-related services which we at Paul Hype Page & Co provide, you can be certain that you will be supplied with all the relevant information related to taxation in Malaysia. We will also help you with the management of your records and filing of your tax returns. Thus, we will ensure that you will be compliant with Malaysia’s current tax laws and thus will not commit any tax crimes.