FILING tax returns without supporting documentation is effectively a “death knell” for taxpayers. In such a situation, the taxpayer is just asking for trouble. The tax law is clear.

Taxpayers in business are supposed to keep records for a period of seven years from the end of the year to which any income from the business or the operation relates. Individuals on the other hand must keep records for seven years from the end of the year of assessment in which the return is furnished. If the taxpayer files their returns late, the seven-year period runs from the end of the year in which the return is furnished. In the situation where there is an appeal against an assessment, the records need to be retained until the appeal is finally determined.

Failure to keep records

If the taxpayer fails to keep records, the director-general of Income Tax can issue a best judgement assessment based on an estimated amount, and usually it will be on the higher side.

The taxpayer can also be prosecuted, and upon conviction, be liable to a fine of not less than RM300 and not more than RM10,000, or to imprisonment for a term not exceeding one year, or both. In light of the current actions taken by the Inland Revenue Board to prosecute taxpayers, taxpayers should take note of these provisions seriously.

What kind of records you need to keep?

If you are an employee, the basic documents you should keep will include all invoices, receipts, bank statements and credit card statements to support your relief and deduction claims, and the EA Forms to support your income. There may be other transactions involving property, shares, mutual funds and other investments. All these transactions need to be supported with the documents such as sale and purchase agreements.

If you are an individual carrying on a business, in addition to the above records, you should retain all the documents with your customers, suppliers and service providers to support your business accounts.

For companies, the main requirement is to keep the underlying source documents such as invoices, bank statements, receipts for payments, payroll records, agreements, etc. It is also the normal requirements for the IRB to ask for general ledgers and where available, the debtor and creditor ledgers, documents supporting your stock movements, etc.

You can keep your records manually or in electronic form. The records must be kept in Malaysia and it can be kept either in Bahasa Malaysia or English. If the records are kept outside Malaysia, the records should be produced when requested by the director-general. Ultimately, all taxpayers should keep the underlying source documents together with the intermediate books of accounts that support the financial statements used for filing the tax returns.

Maintenance of records will be beneficial in any conflict

If there is a dispute with the tax authorities on factual matters or technical matters, the availability of documentation will be an advantage to the taxpayer because the underlying documents will support not only the intention of the taxpayer and therefore strengthen the argument of the taxpayer.

Missing documents is not a lost case

The IRB has been known to be reasonable where taxpayers are not able to give 100% of the documents requested, provided the missing documents can be substantiated with alternative evidence or good reasons given for the non-availability such as fire, flood, and other calamities. If some of your records are missing, please talk to the IRB officials and explain the genuine predicament you are in, and generally IRB is known to be sympathetic to honest taxpayers.

This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (