Can mistakes in tax returns be rectified?

IT IS not uncommon for both corporate and individual taxpayers to inadvertently make mistakes in filing their tax returns. The income tax legislation allows taxpayers to amend their returns to rectify any mistakes or errors which have been genuinely made.

However, it does not allow taxpayers who intentionally set out to defraud the tax authorities.

Common errors or mistakes

Errors and mistakes can either increase or reduce tax liabilities. The common mistakes made are failure to deduct expenses, arithmetical errors in the tax returns, misunderstanding of facts, not being up-to-date with the law, records not available at the time of filing, filling tax returns incorrectly, underdeclaring income or overstating expenses as a result of embezzlement/misappropriation of funds by employees, recognising income or expenditure in the wrong taxable periods and failure to claim reliefs, rebates and exemptions and incentives.

Where is the law?

There are specific provisions which allow you to apply for relief in respect of error or mistake. They are to be found in Sections 77B, 97A(5), 131, and 131A of the Income Tax Act 1967 (ITA).

When is rectification not allowed?

The application will not be considered if the tax returns had been made in accordance with the known stand, rules, and practices of the Director General (DG) prevailing at the time when the assessment is made. This will be the case if the taxpayer, for example, had followed the public ruling and subsequently the courts decide that the position taken in the public ruling is incorrect, the taxpayer cannot reopen the assessment under the error or mistake provisions.

Timeline to apply for relief

There are different timelines for different assessments. If you filed an assessment under the normal self-assessment regime and wish to increase your tax liability, you can do so within six months after the due date of submission of the tax returns. For example, a personal tax return due on April 30 can be amended before Oct 31. The similar six-month timeline will apply where you wish to amend a tax return filed under the self-assessment regime and you do not have a tax liability.

Apart from the above, where the taxpayer wishes to amend the tax return due to errors and mistakes highlighted above under Section 131, the timeline is five years after the end of the year of assessment in which the assessment is deemed final. For example, if a company had filed a tax return on Dec 31, 2020 and it realises it has made a mistake in the return, it can apply for the relief before Dec 31, 2025.

In the event the taxpayer is granted incentives, relief, remission, allowance, or deduction after the year of assessment in which the tax return is filed, the taxpayer can apply for relief and have the tax return amended to benefit from the above within five years after the approval is granted or published in a gazette order, whichever is later.

Where there is a late payment of withholding tax and as a consequence the related expenditure is disallowed, and subsequently the taxpayer settles the outstanding withholding tax, he can apply to the DG to claim the relevant deduction within one year after the end of the year the payment is made.

What is the procedure to appeal?

The application for relief can be made either by a letter or specified forms issued by the Inland Revenue Board (IRB). It is advisable to use the forms specified by the IRB backed with appendices to support your application. The relevant forms should be submitted to the respective IRB branches where the taxpayer file is registered or maintained.

This article was contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai.