• Malaysia Tax Crimes

In every country, there are tax laws that govern all tax-related matters – Malaysia is no different. The tax laws are imposed to prevent tax crimes in the country. Despite the laws, tax crimes are still prevalent and these are considered a serious offence which 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 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
  • 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
  • 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 willfully and intentionally falsifies information on a tax return to limit the amount of tax liability.

This 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
  • Claiming personal expenses as business expenses for the purposes of reducing one’s tax obligations

What is the Difference Between Tax Avoidance & Tax Evasion

Tax avoidance, unlike tax evasion, is legal and must be differentiated from tax evasion.

Tax AvoidanceTax Evasion
  • Legal
  • 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
  • Illegal
  • 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:

  • 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.

Tax Crimes Punishments

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
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Tax Compliance

To avoid committing a tax crime, you must be compliant to the tax laws and be familiar with the country’s taxation system.

Not only must you know about the tax laws, 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:

  • Private limited company

  • Limited company
  • Non-resident company

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.

Thinking of setting up your company in Malaysia or require a trusted tax agent? Reach out to us for free consultation on company incorporation and other corporate services today!

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FAQs

Are foreign workers taxed in Malaysia?2021-09-24T15:40:43+08:00

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.

Are there tax deductions offered?2021-09-24T15:40:13+08:00

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.

Do I have to get an income tax number for my employee or can they obtain it themselves?2021-09-24T15:39:37+08:00

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.

How to obtain my income tax number?2021-09-24T15:39:02+08:00

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.

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