Raising the level of taxation compliance lies mainly with an effective, efficient and consistent administration to lead to better awareness, trust and confidence in the governments taxation (tax) system. Improving voluntary tax compliance can be facilitated by a tax system that is transparent, easy to understand and simple to implement and use.
The two points above have been exemplified by Malaysia’s Inland Revenue Board (Lembaga Hasil Dalam Negeri Malaysia or HASiL) under the central focus to foster economic growth and development through sustainable sources of funding for social programs and public investments. The challenge is then to carefully choose viable means in allowing taxpayers to understand why compliance is necessary aside from the level of tax rates and the tax base within the strict confines of the law.
Programs providing health, education, infrastructure and other services are important to achieve the common goal of a prosperous, functional and orderly society, and they require that governments raise revenue. Taxation not only pays for public goods and services; it is also a key ingredient in the social contract between citizens and the economy. Revenue is then a function of the law and the economy and how taxes are raised and spent therefore determine a government’s very legitimacy.
Over the last few years, the IRB has made positive strides towards enabling all Malaysians and applicable stakeholders by enhancing the means of which taxes are paid, which has resulted in a higher compliance rate or the total tax collection. The Board has definitely obtained ‘HASiL’ which translates from Malay as gains or results for the nation which plays a crucial role in its economic sustainability.
Inland Revenue Board Chief Executive Officer Dato’ Sri Dr. Mohd Nizom Sairi, spent some time exclusively with BusinessToday to present views on the overall role and successes of the IRB as a service facilitator and administrator for all Malaysians.
He said an ideal tax system must strike a balance between the interest of taxpayers and the Government. It should be supported by a strong compliance foundation within an efficient ecosystem, and this has seen results as IRB’s gross direct tax collection for 2022 was at a record high of RM175.4 billion, a 21.75 per cent increase from RM144.1 billion in 2021. In Malaysia, direct tax collection contributes to more than half of Government revenue.
Looking at the recent results, the amount collected was 9.5 per cent or RM15.2 billion higher than MOF’s estimate of RM160.2 billion for 2022. Corporate income tax made up the largest portion of direct tax revenue at RM82.13 billion, while personal income tax amounted to RM33.78 billion.
Dr. Mohd Nizom said: “IRB is actually a service organisation tasked to administer the Income Tax Act, 1967 and other relevant laws but it’s merely not about enforcement. Our role begins with increasing awareness to the people based on the confines of the law, educating them on what Act covers and providing them space or services make payments without facing difficulties.
“Today, awareness, education, and service dictates our strategy and not one of being a feared enforcer to reach a high compliance rate. Once this has been done without any ambiguities, then we will look for those who do not comply with taxation responsibilities, so they don’t have any excuse when it’s time to enforce the law on them.”
Reducing Leakages
We found that a critical move to replenish the nation’s coffers is to plug tax leakages. It enables the Government to cut direct taxes to attract talent and investments. However, this can only be done if the revenue is sufficient, which is either by way of increasing the tax rate or improving the tax system so that there are fewer leakages. We believe that if the system is ideal, leakages will be fewer and actual revenue can be collected. As a result, the tax rate will go down, he added.
No To Another Special Voluntary Disclosure Programme in Future
Apart from asserting professionalism, other efforts to plug leakages include the ongoing Special Voluntary Disclosure Programme (SVDP) 2.0 with hope it will bring in income that was previously off the radar and the adoption of e-invoicing initiative, which will force most transactions to leave behind a digital footprint thereby enhancing IRB’s ability to trace income that is subject to tax.
To encourage taxpayers to come forward to declare income or make other corrections based on correct value and information, the Government has recently launched the Special Voluntary Disclosure Programme (SVDP) 2.0, commencing from 6 June 2023 until 31 May 2024, with a zero-penalty regime in place. Among the scope of SVDP 2.0 includes undeclared / under-declared income, tax levied on disposal of assets subject to the Real Property Gains Tax Act 1976; and late stamping of documents / agreements.
All applications and reports will be accepted in good faith. However, IRB will not accept applications for cases where an audit or investigations have commenced and failure to make voluntary disclosure payments on time.
IRB expects some 50,000 new and existing taxpayers to come forward to update their compliance status, with an estimated revenue of RM1 billion. However, this time round, IRB’s target is lower compared to SVDP 1.0. In the last SVDP, a total of 286,428 taxpayers made voluntary declarations with a total of additional taxes and penalties amounting to RM7.877 billion. Meanwhile, 11,176 new taxpayers were registered and brought into the tax net. As of 31 July 2023, total participation is 13,109 taxpayers.
Dr. Mohd Nizom stressed that there will be no SVDP 3.0 as the program caries a risk factor, especially for those who have paid their taxes in time. It seems unfair. So, for those who did not comply by whatever category, the IRB is giving you a chance, to come on board the tax compliance journey.
Taxpayers who wish to settle any tax issues, be it on tax file registration, tax assessment, payment of taxes, appeal on disagreed tax policy or tax adjustment, payment of tax arrears, can come to any of IRB’s offices for guidance or browse through HASiL website https://www.hasil.gov.my to look for the necessary information; or call Hasil Care Line (HCL) at 03-8911 1000; or 603-8911 1100 (from outside Malaysia); or fill up customer feedback form at https://maklumbalaspelanggan.hasil.gov.my/Public/
In addition to the program, IRB also recently issued the possibility of a payment offer on the previous year’s tax due on personal income tax without being imposed with a tax increase.
Promoting A favourable Business Environment
Promoting Business Environment is another objective of taxes. IRB’s efforts to streamline tax processes via enhancing Digital Transformation benefits, simplify tax laws, and provide clear guidelines contribute to creating a favourable business environment.
Clarity and transparency in tax regulations attract local and foreign investment, stimulate economic growth, and foster entrepreneurship. A vibrant business environment translates into job creation, increased productivity, and overall economic sustainability. Taxes also encourage inbound of Foreign Direct Investments (FDI).
Malaysians must know that over the past two decades, corporate tax rates worldwide have been steadily decreasing in response to growing corporate tax competition. “Malaysia’s corporate tax rate has also undergone a gradual reduction, decreasing from 34 percent in 1993 to the current rate of 24 percent.
According to a study by the Tax Foundation, a US-based independent tax research group, the global average statutory corporate income tax rate has consistently declined since 1980, although it has stabilised in recent years.
In the Asian region, corporate tax rates have continued to decline, with an average rate of 19.52 percent, compared to the average rates of 23.57 percent in Organisation for Economic Co-Operation and Development (OECD) countries and 32 percent in the Group of Seven (G7) countries.
The point here being that a reducing corporate tax rates can result in significant productivity improvements, especially in dynamic and profitable organisations that have the potential to make a substantial contribution to GDP growth. Furthermore, lower corporate taxes are likely to attract more inbound foreign direct investments, which have been proven to stimulate opportunities and enhance productivity within local and domestic organisations.
Research indicates that countries that have implemented corporate tax rate reductions to promote economic growth have experienced an increase in their corporate tax collections as well.
Taxes play a significant role in maintaining economic stability in Malaysia. The revenue generated from taxes allows the Government to implement fiscal policies that help regulate the economy during various economic cycles.
During periods of economic downturn, the Government can use tax measures such as tax incentives or reductions to stimulate consumer spending and business investment, thereby boosting economic activity. Conversely, during times of inflation or economic overheating, the Government can increase taxes to curb excessive spending and control inflationary pressures.
Taxes also play a vital role in supporting social welfare programmes in Malaysia. The revenue collected from taxes is utilised to provide essential public services, such as healthcare, education, and social security. These programmes help reduce inequality, alleviate poverty, and enhance social well-being, creating a more inclusive and equitable society.
By investing in human capital development and social safety nets, taxes contribute to a skilled and healthy workforce, which in turn drives economic growth and productivity.
In summary, taxes are important for Malaysia’s development as they provide the necessary resources for Government expenditure. By maintaining an efficient and fair tax system, Malaysia can continue to foster economic growth, attract investment, and improve the well-being of its citizens. So, ultimately, what we want to see 100% being compliant to the law, Dr. Mohd Nizom added.
Evolving Digitally
Looking at transformation, technology indeed helps tax functions to evolve by making manual tax processes more efficient. Without technology, everything comes with limitation and with technology, everything is possible, limitless, adding value and good for growth.
“We introduced digital services to streamline tax-related processes and make it easier for taxpayers to fulfil their obligations. The introduction of online tax filing and payment systems concurrently has made tax compliance more convenient and easier for taxpayers.
Among of the evolution in e-services to enhance tax collection in Malaysia include tax payment via FPX as a gateway, via Credit Card for any debit or credit (VISA, Mastercard, and American Express), the e-Lejar that allows taxpayers to check their personal details, ledger transactions and the latest tax balance status. Now, taxpayers can have real-time data under MyTax, making it easier to check transactions and avoid any negligence or scammer activity.
Aside from these, the System e-CP39 is a new method for employers to send their employees’ Monthly Tax Deduction (PCB) data and pay online. The use of this system is specific to employers who do not have a computerised payroll system. Using e-CP39 saves time and simplifies PCB calculations while e-Data PCB is a system provided for employers to check the format and upload the CP39 text file online. The use of this system can help employers send data that meets specifications, among many other functions.
“If we look at the numbers and enhancement of e-services, what I can say is that IRB will live up to its role and build the taxpayers trust in the tax system through transparency in the way the taxes are administered in a fair and equitable manner.
“The IRB has also embedded ‘Compliance-by-Design’ into the system with real-time data by implementing a reliable and transparent tax system. This is the main component of HASiL Transformation (TH) Plan; to further streamline the tax system, improve the accuracy of records and business process re-engineering through the development of HITS (HASiL Integrated Tax System) application.”
Overall, a well-managed tax administration system that effectively administers revenue can have profound impact on the stability of Malaysia. By ensuring citizens are happy, the economy can flourish,
and the government can fulfil its role in providing essential services and promoting the well-being of its people.
Dr. Mohd Nizom, on his call, said: “We are here to serve you. We are here to facilitate your compliance journey. I don’t want to be in an adversarial position but to be an advisory facilitator as we all have our responsibilities.”
