Tax laws govern all tax-related matters in every country, including Malaysia. Despite the existence of these laws, tax crimes remain prevalent and authorities consider them serious offences that may result in severe penalties for both individuals and corporations.
What are Some Examples of Tax Crimes in Malaysia
While there are various tax crimes, here are some of the more common ones in Malaysia:
- Attempting to leave the country without paying all taxes
- 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
- 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 view in any of various ways. It can also be as:
- An act of corrupt or forcible interference
- An act of forcible rescue of seized property
- 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, also known as tax fraud, occurs when an individual or business entity wilfully and intentionally falsifies information on a tax return to limit the amount of tax liability.
Even filing a tax return dishonestly in an attempt to avoid paying the entire amount of tax owed, thus defining it as the deliberate misrepresentation or omission of data on a tax return.
Some examples of tax evasion or 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
- Claiming personal expenses as business expenses for the purposes of reducing one’s tax obligations
What is the Difference Between Tax Avoidance & Tax Evasion in Malaysia
Tax avoidance, unlike tax evasion, is legal and must be different from tax evasion.
| Tax Avoidance | Tax Evasion |
|---|---|
|
|
Here are some of the possible examples of tax avoidance include:
- Charitable donations to an approved entity
- 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.
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 they left unpaid, but if the offender is also found guilty of official charges, authorities may sentence them to a jail term.
The Malaysian government primarily intends to punish those who under-declare their income or avoid filing tax returns in its strategy for punishing tax criminals.
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 process can by a way of identification of the offender’s employer so that deductions may impose.
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 impose 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 that is using depends on whether the tax to be paid is being paid by an individual or company.
Forms for companies can divide into three categories:
- Private limited company
- Limited company
- Non-resident company
The filing and returning of these income tax forms is usually goes 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.
FAQs
Depending on the foreign individual residency in Malaysia and their duration of employment, they will be subjected to tax accordingly.
A non-resident individual is taxed at a flat rate of 30%, a resident will be taxed on a progressive tax rate, depending on their taxable income.
Malaysia has numerous tax reliefs for companies as well as personal income. These tax relief cover categories such as but not limited to, disabilities, alimony, child care and even for breastfeeding equipment for mothers.
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.
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.
A unique income tax number is issued to anyone who is required to report income for assessment to the Director General of Inland Revenue.
