Tax audit, investigation issues highlighted

PETALING JAYA: The management of small and medium enterprises (SMEs) can experience confusion and fear when they receive letters from tax authorities.

“Some cannot even differentiate between the Inland Revenue Board (IRB) and Royal Malaysian Customs Department (RMC), ” said KPMG Malaysia executive director Soh Lian Seng during a webinar and roundtable discussion on “Latest Development in Tax Compliance, Audit and Investigation” at the Annual Tax Symposium.

Soh also noted that many taxpayers are unable to differentiate between desk and field audits.

“It can also be challenging to talk to taxpayers about the urgency of responding, when they get a letter from the tax authorities. The taxpayer has difficulty understanding why tax authorities are asking for documentation after everything has been done by auditors and tax agents, ” said Soh. Also present was RMC senior assistant director I (technical service division) Zaily Ayub who spoke about the functions of the department and the tax audit and investigation processes.

IRB deputy director I (large taxpayer branch) Vijayen Nagalingham also spoke about issues faced by SMEs when claiming for tax deductions and incentives. “Common issues include record keeping, recognition of income and characterisation of the income gained - whether it is capital gain or revenue in nature. Another issue is the deductibility of tax expenses.

“When we conduct an audit, the companies cannot submit supporting documents for the expenses that they claimed, ” said Vijayen.

He also cited cases where IRB looked into the fulfillment of conditions set by the government for tax incentives.

“There are cases where the companies don’t fulfill the conditions, and yet they are still claiming the tax incentives. We also come across cases where taxpayer is claiming the tax incentive for product A, but actually, the tax incentive is given to product B.”

Also present was tax lawyer S. Saravana Kumar from Rosli Dahlan Saravana Partnership who gave examples of cases where the taxpayer sought review in court.

“Cases that go to court are where there is a technical issue or a difference of view from the IRB or RMC.

“For example, a company imported cars into Malaysia, and the Finance Ministry issued a letter which gave full import duty exemption. But the RMC took the view this did not apply to hybrid cars.

The High Court took the view that the Finance Minister has the final say, via the wording of the letter which specified full import duty exemption for that car model or range, ” he said.

S. Saravana also said in tax disputes, companies should engage a tax consultant first.

“Going to court should be a last resort, ” he said and cited a land acquisition case where the company continued discussions with the tax authority, after the court had taken the view that the dispute should be discussed first with the Special Commissioners of Income Tax.

Another example given by S. Saravana involved a company claiming Industrial Building Allowance and Investment Tax Allowance for a hospital building.

However, the IRB took the view that the car park is not part of the hospital building and said the car park was not eligible for the claim. "We argued otherwise, and pointed out non-visitors do not park their cars there as the rates are expensive. This hospital is also nowhere near a shopping mall. Finally, the Special Commissioners of Income Tax agreed on the tax allowance claims on the car park," he said. The webinar was moderated by Syarikat Ong Group managing partner Agnes Wong, who also also advised taxpayers to follow up after responding to tax authorities. "You should follow up regarding the status of the case, if there is no reply from the tax authorities after you have furnished documents to them," she said. The Annual Tax Symposium is organised by Syarikat Ong, Pemandu Associates and Malaysia My Second Home (MM2H) Club Hong Kong. Net proceeds of RM8,888 from the symposium were donated to the National Autism Society of Malaysia. Syarikat Ong is a provider of corporate secretarial, tax and accounting services.

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25 November 2021