AN IMPROVED relationship between taxpayers and the Inland Revenue Board (IRB) will certainly reduce the cost of administering the tax regime and improve tax collection.
If taxpayers willingly pay the correct amount of taxes, the level of audit and investigation activity can be dramatically reduced. Tax audits and investigations are time consuming for taxpayers and usually leave behind a “bad taste” for them because most cases are settled with additional taxes and penalties.
What is happening now?
At the moment, taxpayers’ relationship with the IRB is a bit on the wane because of the slow release of refunds. The feeling among taxpayers is that the government is very keen on collecting taxes on time and promptly imposing penalties for late payments without reciprocating with prompt refunds. You cannot totally blame the IRB because the availability of funds is not under the control of the IRB but is subject to release by federal authorities. Adding to this problem is the reluctance for the board to allow tax setoffs in some cases.
Since there is a very high key performance indicator for the IRB to collect tax of RM197 billion, some taxpayers are noticing that, more than often, the tax authorities are not giving the benefit of doubt to taxpayers where there are grey areas. This results in more disputes and litigation, which is time-consuming and costly.
There is also a fear among taxpayers that if they approach the tax authorities for their view, and the answer is negative, is there a possibility that their cases will be opened up for audits. Consequently, taxpayers keep away from directly approaching the IRB.
Are the above perceptions true?
For tax refunds, improvements are noticeable lately with the federal authorities beginning to allocate more monies to the IRB to refund taxpayers. The situation must improve quickly to provide confidence that the tax system is fair to taxpayers.
On the matter of giving the benefit of the doubt to taxpayers on grey areas well supported by facts and the law by taxpayers, IRB officials should refrain from hastily issuing assessments.
In such situations, the relevant sections of the IRB should refer such matters to the headquarters to receive an independent view from officials not involved in the case. This should be communicated to the taxpayer, and the taxpayer should be allowed to adduce any additional facts and information that may be relevant to the officials reviewing the matter.
Effectively, this is a four-eye review within the IRB before an assessment is issued. The team at the headquarters should be unbiased and should not be influenced by the potential tax collection.
Taxpayers are unlikely to believe this until they see it in action. Although there is a dispute resolution panel (DRP) which deals with cases where assessments have been issued, it is a little late because the taxes have to be paid before you can go to the DRP.
The fear among taxpayers in approaching the IRB for its views on complex matters could be detrimental if they get a negative reply because taxpayers feel that they have exposed themselves to the IRB and an audit may subsequently follow on. The IRB should give assurance that approaching and consulting the board will not give rise to any detrimental consequence. The IRB should welcome such consultation.
When taxpayers approach the IRB directly and realise that there is an element of ignorance of law, additional taxes can be collected, but penalties must not be imposed although in law, “ignorance of law” is no excuse. However, if the taxpayer uses tax agents, then ignorance of law is not acceptable, and the imposition of penalties is unavoidable.
What should be done?
The IRB needs to work very hard in providing assistance in the form of education, notifications, announcements, public relations exercises such as meeting taxpayers, events and seminars provided free of charge, opening customer desks at all branches, and responding via telephones and emails to taxpayers’ queries, etc. The relationship will improve through greater interaction between taxpayers and the IRB.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).
