MAY 6 — Last November, the Malaysian government introduced the Special Voluntary Disclosure Programme (SVDP) alongside its 2019 Budget.
The SVDP encourages taxpayers to not only settle tax arrears but also gives them a chance to voluntarily disclose undeclared income from previous years.
However, public response towards the SVDP has been somewhat jittery.
Albeit news that almost 390,000 tax declarations have been received under the SVDP as claimed by the Inland Revenue Board (IRB), varying degrees of perception still exist in regard to certain promises of the SVDP.
This article aims to highlight such issues while proposing how businesses may participate in the SVDP without putting their interests at stake.
How special is the SVDP?
The IRB released its SVDP Operational Guidelines to provide clarification on the method and procedures for implementing the programme.
Although the SVDP was primarily aimed at encouraging taxpayers with offshore accounts to declare income, it is in fact open to all categories of taxpayers.
This includes non-resident companies who have had income derived from the country as well as taxable persons yet to be registered with the IRB.
In brief, the SVDP offers a reduced penalty rate of 10 per cent for the period between November 2018 to the newly extended date of June 30, 2019 and a 15 per cent penalty will follow-through from July 1, 2019 to September 30, 2019.
This is a fairly reasonable amount as compared to previous Tax Amnesty Programmes, whereby a higher rate of penalty of 25 per cent was offered to taxpayers.
Further, taxpayers should be well informed that penalty rates will be much stricter after the SVDP, with a minimum rate of 80 per cent up to 300 per cent as warned by the IRB.
On top of that, according to the IRB, all voluntary disclosures and declarations during the SVDP will be accepted in good faith, without further review of the reported information.
In other words, the returns made under the voluntary disclosure will be deemed final.
This is notably different from prior years, where taxpayers may still be audited on reported issues upon voluntary disclosure.
Is the SVDP too good to be true?
Firstly, an issue that is brimming with uncertainty is the concept of “good faith” as promised by the SVDP.
Even though the guidelines state that no further review will be made on the information disclosed, there are concerns that the IRB will go back on its promise and further scrutinise those declaring their assets.
Perhaps the complexity of this concept persists because of the non-binding nature of the guidelines.
In the case of Teruntum Theatre Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri (1998), the IRB was allowed to change its mind from assessing the sale of a piece of land under real property gains tax (RPGT) to income tax.
The Court of Appeal held that an estoppel could not be invoked against the IRB to defeat a positive duty already imposed upon the taxpayer by statute.
Hence, it is feared that the courts will take the same view under the SVDP despite the IRB’s assurance to accept the taxpayer’s disclosure in good faith.
Taxpayers are further justified in their concern that participating in SVDP could later be construed as the admission of their own wrongdoings.
This means that a threat of criminal proceedings may also lie above them.
Suppose, for instance, the IRB is made aware of additional undeclared income and the taxpayer’s complicity for this omission, the penalties imposed will no longer be based on the programme.
Hence, not only will the penalties imposed be higher, but the imposition of penalty under Section 113 of the Income Tax Act 1967 (ITA) itself could draw unwanted inferences and have an impact on a company’s reputation.
Furthermore, any disclosure made is still subject to findings of an ongoing audit or investigation. If the disclosed information is not consistent with the issues under audit or investigation, the IRB confirms that further audit may be undertaken on the taxpayer.
This is illustrated in TP v KPHDN (2019), an ongoing case where the IRB commenced tax audit on a company after issuing RPGT clearance forms in respect of the disposal of certain parcels of land.
When the company voluntarily disclosed its RPGT under the SVDP, which ironically was at the request of the IRB, the information disclosed was accepted and the IRB requested for the company to sign a statutory declaration.
In spite of the taxpayer complying with its request, the IRB went on to raise a notice of additional assessment for income tax in respect of the said land, which amounted to more than RM90 million.
There is also insufficient clarity in regard to the time frame for payment of taxes. Prior to the extension, the underpaid tax and reduced penalty must be paid by the following deadlines:
As such, the amended due dates would likely be 1.7.2019 for the first phase and 1.10.2019 for the second phase.
Problems will arise where voluntary disclosure is made on the last day of period for disclosure.
There is a high possibility that the taxpayer will not be able to make payment on or before it is due, especially if disclosure made is for several years of assessments.
Consequently, failure to settle the tax payable in full could result in an increase in tax payable as they will be subject to higher penalty rates.
In general, there are two ways in which the amount of taxes payable could be finalised i.e. through composite assessment and consent judgement.
Under Section 96A of the ITA, the IRB and the taxpayer can come to a composite agreement for the years of assessment as well as the amount of penalties to be raised.
Unlike the Teruntum case, this is a provision of law that could be relied upon in making the IRB honour an agreement as it is binding on both parties.
Unfortunately, nothing in the guidelines indicates that a composite assessment will be issued by the IRB upon receiving a declaration under the SVDP.
Consent judgments on the other hand, could only be obtained through court proceedings, which clearly do not fall within the scope of the SVDP.
How to protect your interests?
Regardless of the uncertainties surrounding the SVDP, the programme does have its share of benefits.
Thus, businesses would benefit from the programme provided that they take careful and correct measures to ensure that their interests are well protected.
Firstly, taxpayers should seek professional advice prior to making any disclosures. There have been instances where a gain or income received is misconstrued or wrongly disclosed. Thus, it is important for taxpayers to fully understand the risks of having information used by the IRB to raise further assessments on different matters.
It is also equally important that the taxpayer is properly represented. Any discussions or negotiations between the IRB and the taxpayer should be documented properly so as to avoid the latter being placed in an adverse position.
Ultimately, any amount of tax payable must be paid in full by the prescribed due date upon any disclosure. In other words, taxpayers should avoid making declarations at the very last minute as this may result in their inability to pay on time as discussed above.
Beyond such measures, a taxpayer may still choose to take legal actions where there are doubts in relation to any decisions made by the IRB.
As mentioned in the above cases, the IRB may still raise further assessments where voluntary disclosure has been made.
Such an unfair situation may be challenged by way of judicial review; a procedure that empowers the court to review a decision made by the government or public authority.
As was held in Metacorp Development v KPHDN (2011), the availability of an alternative remedy by way of the appeal process may not bar an application for judicial review.
This is especially in cases involving the legality of the authority’s conduct such as an error of law or abuse of power.
Conclusion
Considering the lack of confidence on the part of taxpayers, the taxes collected under the SVDP so far could largely be a result of using big data analytics and the Automatic Exchange of Information protocol.
Although the SVDP allows for the recalibration of tax affairs, further improvements have to be made to provide taxpayers with certainty and a sense of finality.
Hence, businesses should weigh their options carefully and participate in this programme with precautionary measures.
As its name suggests, any disclosure should be "voluntary" and businesses should only do so if necessary.
* S. Saravana Kumar is a partner with the Tax, SST & Customs Practice of Lee Hishammuddin Allen & Gledhill. He has successfully represented taxpayers in many benchmark tax disputes.
** Nurul Imani Hamzah is a paralegal with the Tax, SST & Customs Practice of LHAG. She read Master of Laws at Queen Mary University of London and is preparing for the Certificate in Legal Practice.
*** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
