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In Malaysia, taxpayers are responsible for reporting their taxable income to the Inland Revenue Board (LHDN) under a voluntary tax reporting system.
Salaried individuals must submit their BE form by April 30 (or May 15 if filing electronically).
Those with business income must submit their B form by June 30 (or July 15 if filing electronically).
While this may seem routine, tax evasion remains a concern. To prevent this, LHDN enforces a Stoppage Order, barring tax evaders from leaving the country under Section 104, Income Tax Act 1967. A well-known case involved a family which had no unresolved tax had been barred from leaving the country. (Source) To avoid such issues, taxpayers must ensure accurate tax reporting.
1. Misreporting Taxable Income
Taxable income refers to any money received from activities performed. In simple terms, all income is taxable unless specifically exempted.
Some assume that cash payments are not taxable, but these must be recorded properly for tax audits. LHDN may investigate if they find proof of unreported income.
Others over-report income, thinking it will help future business or asset activities. However, this can lead to higher taxes and unnecessary financial strain.
2. Claiming Unnecessary Expenses For Tax Deductions
Only business taxpayers can claim tax deductions, but not all expenses qualify.
Non-deductible expenses include: asset depreciation, asset maintenance and private expenses. These must be added back when calculating taxable income.
Example: A salesperson can claim client entertainment expenses (e.g., dining out) at 50% tax deductible but cannot claim a gift (e.g., house wine) as a deductible expense.
3. Overclaiming Tax Reliefs
Tax reliefs reduce your chargeable income for specific expenses, such as:
Individual tax relief
Insurance & EPF contribution relief
Newspaper & magazine subscription relief
Some taxpayers over-claim reliefs without proper receipts. Reliefs marked "RESTRICTED" (TERHAD) must be based on either the total receipts or the maximum allowed amount—whichever is lower.
You must keep all receipts as proof. Failure to do so may result in a RM1,000–RM10,000 fine plus a 200% penalty on unpaid taxes (Section 113(1)(b), Income Tax Act 1967).
4. Filing Ineligible Receipts For Tax Rebates
Tax rebates directly reduce the tax payable to LHDN and only apply to specific cases, such as:
Zakat and fitrah payments
Annual chargeable income below RM35,000
Departure levy for umrah / religious travel (up to 2 times per lifetime)
Donations to LHDN-registered charities
Gifts to government organisations
Donating to an organisation that is not LHDN-registered and claiming it for tax rebates is a common mistake. Always verify an organisation's status before filing. If unsure, it is best to exclude the donation from tax rebates.
5. Inconsistent Tax Reporting
As part of voluntary tax reporting, taxpayers must report their annual taxable income accurately.
If you earned zero income, you should still file a null-income report.
LHDN can audit tax reports for up to 7 years if inconsistencies arise.
Failure to report taxable income is an offence under Section 112(1), Income Tax Act 1967, with penalties of up to RM20,000, six months in jail, or both.
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