By Nithea Nadarajah
Accountants play a pivotal role in any successful business, whereby their responsibility also extends to effective tax compliance and assisting clients to better comprehend their obligations in relation to tax laws and regulations.
At the same time, accountants are also ethically bound to combat tax evasion. “You are answerable to the Inland Revenue Board Malaysia (IRBM). You are also answerable to the taxpayer,” highlighted Renganathan Kannan, Partner, TraTax, speaker for MIA’s SVDP programme on accountants and taxpayer rights.
How can accountants assist taxpayers to comply with the SVDP? The following are some recommended steps:
Do an Impact Analysis
Before embarking on any course of action, first differentiate the Permanent Voluntary Disclosure (PVD) and Temporary Voluntary Disclosure (TVD) initiatives.
A TVD initiative offers a temporary window of opportunity as compared to a more permanent period allowed under a PVD. This current SVDP is clearly a temporary initiative simply because of its limited eight month timeframe which ends on 30 June 2019.
This TVD is clearly less punitive. The PVD penalty rates in 2015 and 2016 ranged between 10% and 30% but rose to 35% from 2017 onwards, whereas the TVD’s penalty rates have been reduced from 25% in prior years to 10%/15% in 2019.
Unlike previous temporary initiatives which involve limited categories of taxpayers, the current SVDP involves all types taxpayers, including non-residents and taxable persons yet to be registered with the IRBM.
The intrinsic component of an impact analysis is a detailed examination of a client’s business, including a study on risk factors as well as a full spectrum analysis of all the operations. Astute awareness of the characteristics of a client is equally pertinent, advised Renganathan. An ethical accountant will ensure that he does not participate in or condone a client’s reckless or illicit actions which may cause him or his professional firm disrepute.
An impact analysis exercise will ultimately lead to the identification of tax shortages. “If there is a tax shortage, identify its nature,” said Renganathan. This could be either a tax gap, misreporting, non-compliance or tax evasion.
- The tax gap occurs when either the taxable income is understated, or the deductible expenses overstated, which results in lesser taxes being paid to the tax authorities.
- Misreporting is when false or inaccurate information is provided to the IRBM.
- Non-compliance is failure to act in accordance with tax rules and regulations.
- Tax evasion is the use of illegal means to reduce tax liability.
- Each of the above occurrences need to be examined on a case to case basis, its severity determined, and appropriate actions taken accordingly.
Before liaising with the IRBM on matters relating to the SVDP, do obtain specific appointment letters from taxpayers. These letters should explicitly include the years of assessments covered as well as the mode of payment. “Protect yourselves,” advised Renganathan. This is to avoid the parties involved ‘playing the blame game’ should things turn sour. Additionally, a proper reconciliation of tax submissions and payments need to be made once the SVDP exercise is duly completed to avoid future complications.
Clarify the Rights of Taxpayers and the IRBM
This SVDP is an excellent opportunity for taxpayers as submissions made at this juncture will be accepted in good faith and not scrutinised further by the IRBM. Renganathan advises taxpayers to leverage on it, especially taxpayers saddled with a backlog of unsubmitted tax returns. Furthermore, even if audited accounts are not available, taxpayers are allowed to make voluntary disclosures based on management accounts.
Taxpayers should also be cognisant that, although penalty rates under the SVDP are deemed final, avenues for appeal are always available, especially when there is no criminal intent. Hence, if a disclosure is made in relation to technical adjustments which are deemed non-tax evasive in nature, the relevant reservations signifying an appeal should be duly highlighted upon submission of the voluntary disclosure report.
Since this SVDP ends on 30 June 2019, accountants should notify clients on a timely basis to enable proper planning and appropriate actions. This includes the settlement of taxes and penalties due to avoid the imposition of late payment penalties. “Pay once you submit the documents. Do not wait for the Notice,” advised Renganathan. This is to avoid the imposition of late payment penalties on payments deemed settled beyond the SVDP timeframe.
Keep Adequate Records
Renganathan revealed that the IRBM goes through fourteen (14) layers of the examination process in relation to any scrutinisation exercise, be it desk audit, field audit or even tax investigation. To pass this rigorous scrutiny, the existence of proper documents is essential and its availability becomes the responsibility of each and every taxpayer. The Malaysian tax laws explicitly require all taxpayers to keep sufficient records for a period of seven years from the end of the year to which income from the business relates. Hence, even if voluntary disclosures were made under this SVDP in good faith, which confirms no scrutiny by the IRBM, it is still a legal requirement for taxpayers to ensure that relevant records are maintained for a stipulated time period.
You might also be interested in the accompanying article: Take Advantage of the Special Voluntary Disclosure Programme.