What If You Fail To File Your Income Tax in Malaysia?

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April is a stressful month – with the tax submission deadline around the corner. Owing taxes is a cause of much tax-day anxiety.

Last April, Mr. B (a fictitious character), who worked as a manager in a private company, decided to file for a joint income tax assessment, as his wife is not working. He confirmed that his wife has no income in order to claim the RM3,000 spouse relief on top of other tax reliefs he was eligible for.

However, his wife owned a condominium that has been rented out and the rent amounted to RM12,000 in the year of assessment 2012. This income received by his wife was not declared.

The individual or his wife may be liable for prosecution for evasion of tax by deliberate omission of income in the return [under section 114(1)].

Maybe you don’t have the information to complete your return, or you don’t have enough money to pay your tax and are afraid to file your return. Whatever the case may be, not filing your taxes has very serious consequences.

Not filing and not paying are not the same

Though we often heard tales of others who had successfully evade taxes for years, but sooner or later, these tax evaders will fall and be forced to face the music. The IRB managed to solve nearly 1.9 million tax evasion cases in 2012 to recoup an additional RM2.94 billion in revenue.

However, one must not confuse tax avoidance with tax evasion. Though both are illegal, tax avoidance means failure to file for income tax without a reasonable excuse. It carries a lighter punishment of about RM200 to RM2,000 fine and/or imprisonment.

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Tax evasion, on the other hand, usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax bill and includes, in particular, dishonest tax reporting (such as under-declaring income, profits or gains or overstating deductions). This offence is punishable by fine between RM1,000 and RM10,000 and/or imprisonment. Tax consultants who are involved in tax evasion can be fined between RM2,000 and RM20,000 and/or imprisonment.

See complete list of offences, fines and penalties here.

What happens if one misses the deadline?

If you have missed your tax deadline, don’t worry. You can still (and should) file for tax. However, you may have to pay penalties and interest. The IRB charges 10% increment on the tax payable for late filing and additional 5% on the balance if the payment is not made after 60 days from the final date.

The law generally does not allow a waiver of interest charges. However, the IRB may consider a reduction of these penalties if you can show a reasonable cause for being late.

Don’t skip your tax

The consequences of evading or avoiding tax can be dire. In a move to send a “strong message to errant taxpayers” the IRB said it will be launching criminal investigation against more defaulters, in addition to its civil action. Tax evaders can face up to three years in jail or RM20,000 fine or both if found guilty for the various offences under the Income Tax Act 1967, Evidence Act 1950, and the Criminal Procedure Code.

As IRB in Malaysia is going all out to catch tax evaders, it is important for all taxpayers to ensure their taxes are paid on time and accurately. To avoid paying a huge sum comes April every year, sign up for Monthly Tax Deduction (MTD) to deduct a small sum from the salary every month.

Filing taxes is always ‘taxing’ (pun intended), but a little planning can make the process a whole lot less stressful.