Malaysia: Tax Audit and Investigation in Malaysia

The self-assessment system (SAS) for taxpayers was implemented in stages, since year of assessment (YA) 2001 for companies; and, since YA 2004 for individuals (include salaried employees and sole proprietors) and partnerships. The main objective of implementing SAS is to encourage tax compliance by the taxpayers and reduce administrative burden of the Inland Revenue Board (IRB). The responsibility of computing the taxpayer’s liability is shifted form the IRB to the taxpayers. The income tax returns filed by the taxpayers are deemed assessment and no supporting documents are required to be submitted to the IRB. Tax audit and investigation are the main enforcement tools of the IRB under the SAS. 

A tax audit is carried out to examine the taxpayer’s books and records in order to ensure the income tax return submitted is correct and comply with the tax laws and rulings. There are two types of tax audit, i.e. a desk audit and a field audit. A desk audit usually takes place at the IRB’s office, where the IRB officer may request for tax computation and supporting documents to perform a routine checking on the documents to ascertain the tax liability of the taxpayer. A field audit is an examination of the taxpayer’s books and records at the taxpayer’s premises, with prior notice of 14 days from the IRB officer. It may take two to three days depending on the nature and the complexity of the business of the taxpayer. 

The IRB has issued a Tax Audit Framework on 1 January 2007, which was subsequently replaced by the Tax Audit Framework 2013, 2015 and 2017. In 2018, the IRB updated the Tax Audit Framework effective from 1 April 2018. The Tax Audit Framework is a guideline on how a tax audit is carried out, the rights and responsibilities of the IRB, taxpayer and tax agent, offences and penalty. It creates awareness and understanding of the taxpayer on the IRB’s approach, process and practice in respect of tax audit. 

Generally, where a taxpayer is suspected of tax evasion, a tax investigation is carried out without prior notice to the taxpayer. In 2007, the IRB has issued a Tax Investigation Framework. In 2013, the IRB has revised the Tax Investigation Framework effective 1 October 2013. The Tax Investigation Framework outlines the rights and responsibilities of a taxpayer, tax agent and the IRB Officer in respect of a tax investigation. The tax audit and investigation are essential under the SAS to ensure the taxpayers are paying taxes responsibly. It should be carried out in a just and fair manner, and aim at educating the taxpayers to comply with tax laws and rulings.

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