What is the minimum tax penalty under the revised tax audit framework?

What is the minimum tax penalty under the revised tax audit framework?

What Is Tax Audit Framework

The tax audit frameworks are to ensure that tax audits are carried out fairly, transparently, and impartially. appeals, etc.

The frameworks outline the rights and responsibilities of audit officers, taxpayers, and tax agents.

This includes sections on the objectives of a tax audit, the selection of cases, the tax audit implementation, offenses and penalties, complaints and appeals, etc

Revised Offences and Penalty

The main changes in the latest tax audit frameworks are in regard to the section on offenses and penalties.

Under the previous frameworks, an initial penalty of 45% applied, with an increase to 55% for repeated offenses.

The penalty is revised and reduced as follows:

  • 15% for the first offense;

  • 30% for the second offense; and

  • 45% for the third and subsequent offenses.

Guideline on offenses

The determination of the tax penalty rate for the first offence or the second offence is referred to the taxpayer’s record on the penalty which has been imposed under subsection 113(2) of the ITA from 1 January 2020 to 30 April 2022.

If the taxpayer has not been penalised under subsection 113(2) of the ITA during the period from 1 January 2020 to 30 April 2022, any audit findings from 1 May 2022 involving the imposition of penalties under subsection 113(2) of the ITA shall be considered the first offence (15%).

If the taxpayer has been penalised under subsection 113(2) ITA during the period from 1 January 2020 to 30 April 2022, any audit findings from 1 May 2022 involving the imposition of penalties under subsection 113(2) of the ITA shall be considered the second offence (30%).

Technical Adjustment

No penalty will be imposed under subsection 113(2) of the ITA for any underpaid or omission of income in respect of the audit findings involving technical adjustments.

Technical adjustments refer to cases which involve different interpretations of the legislation, according to the facts and issues of the particular case.

It does not apply to cases where public rulings, guidelines, practice notes, income tax regulations, income tax exemption orders or income tax rules have been issued by the IRB.

Fraud

If a taxpayer intentionally makes an incorrect return, the penalty to be imposed under Section 113(2) of the ITA will be at the rate of 100%.

Voluntary Disclosure

The penalty rate under Section 113(2) of the ITA for voluntary disclosures is 15%.

However, in cases where a taxpayer has made a voluntary disclosure, and subsequently makes an additional voluntary disclosure within six months from the due date of the submission of the return form, the penalty rate for the additional voluntary disclosure will be 10%

Others

Audit Meja (Desa Audit) renamed to Semakan Umum

Audit Luar (Field Audit) renamed to Semakan Seluruh

S113 (2) of the Income Tax Act

Where a person—

(a) makes an incorrect return by omitting or understating any income…

(b) gives any incorrect information in relation to any matter affecting his own chargeability to tax…

…The Director General may require that person to pay a penalty equal to the amount of tax which has been undercharged in consequence of the incorrect return or incorrect information…

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