What is Tax Investigation?

Tax investigation is conducted by surprise should there be a suspicion based on precise and definite evidence that a taxpayer is deliberately trying to avoid paying tax or has committed an act of willful evasion under the tax laws. The purpose of tax investigation varies from business to business. The tax authority’s personnel will visit to the taxpayer’s business premises, personal residences, agent or representatives premises to take possession of the required documents and books of accounts for investigation purposes. Besides that, notices may be served on taxpayers, creditors and bankers of the taxpayer to collect additional information to come up with the best judgment of the tax affairs of the taxpayer.


What If Taxpayers Understated Or Omitted Their Company’s Income And Irb Finds Out?

What IRB does is to ensure the taxes reported and paid by taxpayers are correctly prepared by way of conducting tax audits. IRB’s selection process for tax audits is by way of reviewing assessment submissions for irregularities in financial ratios and among others, information provided by third party.

In cases where fraud, willful defraud or negligence is detected, IRB is empowered to revise the tax computations, taking into account tax lost beyond the 6 years of investigation even though the taxpayer may not have records for those periods. If this happens, additional assessment will be issued to recover the tax lost, coupled with penalties, which can be up to 300%. In serious cases, or for repeated offenders, the taxpayer may be prosecuted and if he is found guilty, imprisonment of up to 3 years can be imposed.

To avoid penalty, it is recommended to keep a full set of records and accounts to avoid any misunderstanding in the tax audit process.


How Does The IRB Conduct An Audit?

Once a taxpayer is selected for an audit, the IRB will inform the taxpayer via a telephone call followed by an official notification letter sent via mail or fax.

The period between the date of notification and the audit visit is 14 days. A shorter period of notification may be fixed by IRB with the consent of the taxpayer.

The scope of a tax audit under the self assessment system normally covers a period of 1 to 3 years, unless there are valid reasons to go beyond that period. The time frame for the conclusion of a tax audit is normally within 3 months.

Upon the completion of an audit, the IRB will issue a tax computation summarising the tax adjustments based on their findings and subsequently an additional assessment to collect the additional taxes from the taxpayer.

The taxpayer may still appeal against this assessment by submitting the appeal, through the prescribed Form Q to the Special Commisioners of Income Tax within 30 days from when the assessment is raised.

With effect from 1 Jan 2014, the time-bar for tax audits is reduced from 6 years to 5 years.

Penalty Provisions under Tax Audit System

(a) Penalties for omission/non-disclosure

Under the tax audit system, the IRB has also introduced a new penalty regime for non-disclosure and omission of information that affects a taxpayer’s tax liability. The penalty regime is summarised as follows:

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