Question

A. Businesses have been hit severely in the light of Covid-19 pandemic and the Movement
Control Order imposed by the Malaysian Government to curb the spread of the disease.
Karim, a business owner of a restaurant in Negeri Sembilan, had to shut down his
business as the abrupt decline in his business income could not sustain the business
operating expenses. Briefly explain the type of assessment that could be issued to Karim
by the Director-General of Inland Revenue Board of Malaysia when he ceased his
business, and why this assessment is issued.

B. Based on each of the situations below, explain the type of offence, the provision of the
offence under Income Tax Act 1967, and penalty (fine/imprisonment) faced by the
taxpayers:

i. Aaron submitted a duly completed return for the year of assessment 2019 on his
own. He had declared business income from selling imported gift items and
souvenirs. It was discovered during a tax audit that he had not declared his income
from the rental business that he has been carrying on for the past 5 (five) years.


ii. Ben is a head of accounting department in LHS Sdn Bhd. For the year of
assessment 2019, he was instructed by the director of the company (Tan), to
reclassify certain entertainment expenses of the company (which are not allowable
for income tax purposes) as purchases of goods and service. By doing so, he
managed to understate the tax liability of the company by more than RM5,000 for
2019. This was discovered during a tax audit.

(Malaysia tax)

Answer 1

Income Tax Act (ITA) 1967 provides that any person who committed for an offence will be fined either through penalty or imprisonment or both depending on severity or the number of offences.

The above two situation are very similar as one relates to ommission of income and another wrongful tax credit availment.

Section 113(1)(a) of Income Tax Act,1967 provides that an assessee is liable for penalty or fine of 1,000 to 10,000 and 200% of tax undercharged. Hence, both the Companies may be subject to 200% of tax undercharged.

In second case, Director may face fine or penalty of 2,000 to 20,000 or imprisonment or both for providing wrongful advice/instruction.