*This article was updated on 28 June 2022.
Did you miss the deadline to file your LHDN income tax, again? You could be penalised for tax evasion with fines, imprisonment or both, as stated in the Income Tax Act Malaysia 1967.
Have you ever considered not paying your taxes? Perhaps you’ve entertained the thought of conveniently ‘forgetting’ to file your taxes, or reporting a lower income than you earn, or overstating the amount of tax relief you’re eligible for. If any of these have crossed your mind, please don’t act on them. Anyone guilty of tax offences could get punished with a fine, imprisoned or both.
Let’s take a look at the different types of tax offences, fines, and penalties in Malaysia.
What is the penalty for tax evasion and offences in Malaysia?
Are you guilty of any of these? Hopefully not!
1. Not filing your taxes
If you earn enough to be taxed – this means earning an annual income of RM34,000 after the Employees’ Provident Fund (EPF) deduction, you need to file your taxes. If you don’t, you could be fined between RM200 to RM20,000, be imprisoned, or both. You will also have to make sure to file your income taxes before the deadline, otherwise, you’ll have to deal with the penalty:
|Source of income||Offences||Penalties|
|Non-Business||Paying taxes after 30th April
(not including any extension LHDN provides for e-filing)
a. 10% increment from the tax payable
b. Additional 5% increment on the balance of (a) if payment is not made after 60 days from the final date
|Business||Paying taxes after 30th June
(not including any extension LHDN provides for e-filing)
2. Misreporting to LHDN how much you earn
Claiming that you earn a lower income than you do could mean (unlawfully) paying less tax and you would be at risk of being fined RM1,000 to RM10,000. Plus, you will also have to pay 200% of the tax amount that was undercharged.
Underreporting your income is also an easy mistake to make if you aren’t aware of what types of income are taxable. Besides employment income, the taxable income also includes rental income, dividends, and royalties.
3. Overstating your tax reliefs
Filing your tax reliefs could save you a significant amount of taxes, but you will have to be very careful when you declare them. You will be slapped with a fine of RM1,000 to RM10,000 and 200% of the tax undercharged for any incorrect information in matters affecting the tax liability of a taxpayer or any other person.
You should also never overstate your tax reliefs just to get reduced tax charges – if you don’t have the relevant documents to support your claims, you could get fined RM300 to RM10,000, imprisoned, or both. When you declare a tax relief, make sure to have vouchers, receipts, or any other documents that can be used as proof, and keep them for at least seven years. If you’ve missed out on the tax relief amount, check out the list of LHDN’s income tax relief for e-Filing 2022 (YA 2021).
Tax crimes in Malaysia
Tax evasion is also known as tax fraud. It occurs when an individual or a business entity intentionally falsifies tax return information to limit the tax liability amount. This means that person or business entity avoids paying the full amount of tax that is owed to the government by dishonestly filing a tax return. There are also other types of tax offences in Malaysia, such as:
- Attempting to leave the country paying all taxes due
- Obstructing authorised Inland Revenue Board Of Malaysia (LHDN)/ LHDN officers from carrying out duties
- Wilfully and with intent to evade or assist any other person to evade tax
- Fails (without reasonable excuse) to comply with a notice asking for certain information as required by LHDN
What are the penalties under Income Tax Malaysia 1967?
Aside from the list above, you can also get fined or imprisoned, or both for various other tax offences, depending on the severity or the number of offences. This is as per the Income Tax Act (ITA) 1967. Not just that, if you assist or advise others to under-declare their income you’re subject to a fine of RM2,000 to RM20,000 or imprisonment or both, under the Income Tax Malaysia 1967:
Here’s a summary of tax offences stated in the Income Tax Act:
|Type of tax offences||Fine/ Penalties|
|Failure (without reasonable excuse) to furnish an Income Tax Return Form||RM200 to RM20,000 or imprisonment (not exceeding six months) or both|
|Failure (without reasonable excuse) to give notice of chargeability to tax||RM200 to M20,000 or imprisonment (not exceeding six months) or both|
|Make an incorrect tax return by omitting or understating any income||RM1,000 to RM10,000 and 200% of tax undercharged|
|Give any incorrect information in matters affecting the tax liability of a taxpayer or any other person||RM1,000 to RM10,000 and 200% of tax undercharged|
|Willfully and intentionally evade or assist any other person to evade tax||RM1,000 to RM20,000 or imprisonment (not exceeding three years) or both and 300% of tax undercharged|
|Assist or advise others to under-declare their income||RM2,000 to RM20,000 or imprisonment (not exceeding three years) or both|
|Attempting to leave the country without payment of tax||RM200 to RM20,000 or imprisonment (not exceeding six months) or both|
|Obstructing any authorised officer of LHDN in carrying out his duties||RM1,000 to RM10,000 or imprisonment (not exceeding one year) or both|
|Failure (without reasonable excuse) to comply with an order to keep proper records and documentation||RM300 to RM10,000 or imprisonment (not exceeding one year) or both|
|Failure (without reasonable excuse) to comply with a notice asking for certain information as required by LHDN||RM200 to RM20,000 or imprisonment or (not exceeding six months) both|
|Failure (without reasonable excuse) to give notice on changes of address within three months||RM200 to RM20,000 or imprisonment (not exceeding six months) or both|
What happens if you filed your income tax wrongly?
Made a mistake on your income tax return form but have already submitted it? According to LHDN, here’s how to make a tax amendment:
If you submit the amendment before the tax deadline
Write a letter detailing the mistake made and enclose documents (purchase receipts, invoices, etc.) to support your application. The letter and supporting documents must be submitted to the branch that handles your tax file.
If you submit the amendment within six months from the due date of the tax deadline
Make a self-amendment by submitting an Amended Return Form (ARF) to the branch that handles your tax file. Only taxpayers who have submitted their tax returns on time can make a self-amendment. A taxpayer is allowed to make self-amendment on information or assessment to correct mistakes in the Income Tax Return Form (ITRF) relating to :
- Under-declared / not declared income
- Over claimed of expenses/ other claimes
- Over claimed of capital allowances/incentives/ reliefs
Self-amendment by submission of ARF can result in the following changes :
- From not liable to taxable original assessment notice;
- From taxable to additional tax additional assessment notice; or
- From repayment to reduced repayment original assessment notice