Tax Matters – Information given to IRB may be shared with Customs from 2024

FROM 1967 when the Income Tax Act was enacted, the golden rule is: Information given to the Inland Revenue Board (IRB) is confidential and it cannot be shared with anybody else except when it is needed to be used in court in relation to tax matters, and to the auditor-general in exercising the functions of his office. The intention here is to foster trust with taxpayers.

The amount of information taxpayers provide to the IRB is comprehensive. In filing tax returns, every business must provide details in the profit and loss account, balance sheet, and important transactions such as the property dealings, transactions with Labuan, e-commerce business details, transfer pricing information, shareholder and director particulars, etc.

When it comes to transfer pricing documentation, confidential information such as the pricing policy, business model, pricing strategy, etc. are available to the IRB. During tax audits/investigations, far more information is available.

Change is in the air

During a recent IRB seminar, it was stated that the particular provision dealing with the confidentiality (i.e. Section 138 of the Income Tax Act) could be amended, and the information could be shared with the Royal Malaysian Customs Department (RMCD) for revenue collection purposes.

At the seminar, it was also announced that the information to be shared will be the information that taxpayers will provide in the future when the e-invoicing system is implemented from Aug 1, 2024. It is not clear whether other information available to the IRB will also be made available to RMCD.

This is a significant departure from the clear understanding IRB has maintained for the past seven decades that information provided to them will be kept confidential. Taxpayers will be concerned whether this is the start to opening the doors for the IRB to share information beyond RMCD to the other government agencies. We hope that will not happen and it should not happen otherwise the trust we have in our revenue collecting agencies will be broken.

What should the authorities do?

The simplest alternative to changing this confidentiality rule is to merge both RMCD and IRB into a single revenue collecting agency.

If the government proceeds with amending the sharing of information between IRB and RMCD, it is absolutely important to know whether all information with the IRB will be shared with RMCD, or would it be confined only to e-invoicing information. In such a circumstance, it is important that there must be “firewalls” and controls established to monitor and ensure that information shared is not available to anyone beyond IRB and RMCD.

It would be preferable if both authorities could give us an annual reassurance that they have sufficient protocols and protective measures to ensure that confidentiality and secrecy is maintained. If there is any breach, the laws should also be changed such that the officials or classified persons (who can be external service providers involved in advising or acting for taxpayers) are punished for their wrongdoings more severely than they are today. This will act as a deterrent for anyone breaching the rules of confidentiality.

The amendment to Section 138 should be well thought through and the necessary “firewalls” should be built into the amendments. It should not be a wide-open door, but instead specific revenue-related information could be shared. For example, it can be confined to only the information they receive in the e-invoicing system, and not the total information available in the IRB database.

This is a significant change that should be carefully thought out before the amendment is put through as it affects every taxpayer in this country.

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