Now You Know Tax Penalties and Offences

Welcome to series of Tax educational posts --> Now You Know Tax Penalties and Offences

As usual, this 5 minutes posts explain WHAT, WHY,  and HOW.

The following Income Tax Act (ITA) Subsection focus on

Now You Know Tax Penalties and Offences

S 112(1) - Failure to Furnish Return -

a Single Tax Return

  • A person default in furnishing a complete return under S.77 (1) & S.77A(1) without reasonable excuse
  • A person default in giving a notice of chargeability under S.77 (3) & S.77A(3) without reasonable excuse

Complete return = Return with supporting document, such as audited accounts

Example of reasonable excuse = Prolong illness

Example of unreasonable excuse = Audited accounts unavailable; Accounting book not closed yet

PENALTIES:

  • Fine from RM200 ~RM20,000; or
  • Imprisonment up to 6 months; or
  • Fine + Imprisonment

 

S 112(1A) - Failure to Furnish Tax Return

for 2Y or >2Y

PENALTIES:

  • Fine from RM200 ~RM20,000; or
  • Imprisonment up to 6 months; or
  • Fine + Imprisonment; AND
  • Special penalty up to 300% of taxable amount

 

S 112(3) - Failure to Furnish Tax Return

No Prosecution Scenario

  • A person default in furnishing a complete return under S.77 (1) & S.77A(1)
  • A person default in giving a notice of chargeability under S.77 (3) & S.77A(3)

 

PENALTIES, based on best judgement assessment under S.90 (3)

  • Penalty up to 300% of taxable amount (before any set off, repayment / relief)
  • Generally, the initial penalty % is 20% of taxable amount

 

S 112(4) - Additional Penalty

Findings under Tax Audits Scenario

  • DG may require a person default to pay an additional penalty under S.112 (3) 
  • Additioanl penalty = penalty % * additional tax assessed after tax audit

 

S 113(1) - Incorrect Tax Return

  • Omitted and / or understated revenue  in tax return, unless in good faith 
  • Gives any incorrect information thus decreased tax liability, unless in good faith

Good faith = Quality documented evidence defence the Return's errors was indeed a genius mistake

PENALTIES:

  • Fine from RM1000 ~RM10,000; and
  • Special penalty up to 200% of understated tax amount

 

S 113(2) - Incorrect Tax Return

No Prosecution Scenario & No Defence of Good Faith

(A) Based on tax audit finding, which reported

  • Omitted and / or understated revenue  in tax return 
  • Gives any incorrect information thus decreased tax liability

(B) Amended Tax Return (under S 77B) proactively submit by taxpayer

  1. Is deemed to be voluntary disclosure
  2. Penalty will be imposed under terms of  Audit Framework
  3. Additioanl tax & penalties must be settled on the submission date of the amended return
  4. Not compliance to B3 --> Additional penalties for late payment will be imposed

PENALTIES:

  • Penalty up to 100% on the tax undercharged tax amount
  • DG could exercise discetionary powers (S 124(3) impose a lower penalty of 45% on the tax undercharged

 

S. 114 (1) - Wilful Evasion

  • Wilfully or Intend to Evade; or
  • Assist any person to evade

PENALTIES:

  • Fine from RM1000 ~RM20,000; or
  • Imprisonment up to 3 years; or
  • Fine + Imprisonment; AND
  • Special penalty up to 300% of taxable amount

 

S. 114 (1A) - Penalty for Understated Tax Liability

  • Any person who assist / advice preparation of any tax return, result in an understated tax liability

PENALTIES:

  • Fine from RM2000 ~RM20,000; or
  • Imprisonment up to 3 years; or
  • Fine + Imprisonment; AND

 

S. 114 (2) - Wilful Evasion

Persumption and Intention to Evade Tax

Tax Return furnished with

  • A false statement or accounting record by preparer made on behalf of any person;
  • Preparer shall be presumed (i=until the contrary is proved) with intend to evade tax

 

Now You Know Tax Penalties and Offences

Justification for Imposing Penalty

  1. False Claimed
  2. Failure to Keep Record
  3. Late Return
  4. Return not in accordance to Public Ruling
  5. Failure to Furnish Information
  6. Claimed personal expenses. Details please read Top 15 Tax Disallowed Expenses
  7. Non disclosure of material information

 

Now You Know Tax Penalties and Offences
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Now You Know Tax Penalties and Offences

Acceptable Justification by Taxpayer

Good Faith (only applicable to penalty imposed under S113(1); subject to Court decision)

  • Advice by Tax Agent / Consultant
  • Full and Frank Disclosure
  • Full cooperation

Technical Adjustment

  • Interpretation of the law
  • Timing issue. Example, which year the revenue reported and expense claimed?
  • Revenue or Capital

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