By MOHD AMIRUL RADZUAN
THE EFFECT OF TAX AUDIT AND TAX PENALTY ON INDIVIDUAL INCOME IN MALAYSIA
- Importance of taxation in Malaysia
Taxation is a significant part of the Malaysian economy and the IRBM or the Inland Revenue board of Malaysia paid a critical role in this segment. The IRBM properly manages the laws, as well as regulations related to tax. According to Hamzah et al (2019), tax audits become part of IRBM because they verify the documents of taxpayers. On the other hand, Saad et al (2019) stated that the audits created taxes on the income of the person and their income level. Tax audits examine the business accounts of taxpayers. The financial affairs of taxpayers are completely maintained by the tax audit with proper authentic documents. Section 119(a) discusses fraud issues related to documentation and its penalty. Field audits, as well as desk audits, are the two types of audits of IRBM. Desk audit becomes the official employee of IRBM and checking the important information related to common people becomes the main role of this audit (Sanusi et al. 2021). The expenses of people as well as the specific values of taxpayers properly calculated through desk audits. The field audit exists on the premises of taxpayers and examination of business records becomes the major responsibility of this type of audit.
The field audit tracks the business records and the tax audit is assessed for three years. The assessment can be extended to five years and it completely depends on the audit found issue. IRBM mainly selects audits to improve risk assessment policy. According to Rizqia & Lastiati, (2021), the information of their parties is collected with the help of a tax audit. Specific issues of tax players properly identify with the help of tax audits. On the other hand, Alshrouf, (2019), the income of specific industries as well as location can properly understand with the help of tax audits. Information letters as well as document requests are the major issue of IRBM. The taxpayers either send official issues through mail, email or fax. The audit provides reliable information to taxpayers with the help of various innovative technologies. The audit sends a compliance visit notification-letter to demonstrate the actual reason for the penalties. Audit visits to the various business organisations to understand the type of business as well as their profit rates.
The audit measures complexities as well as the size of the business. The audit conducts a detailed review based on business equipment, inventory, as well as other relevant items. Section 107B stated that approximately 10% penalties have to pay individuals for the issue of estimated income tax. The income tax expert gathers good knowledge related to the investment process as well as the profit rate of the business. According to sections 82A and 82 of the income tax acts, the common people of Malaysia have to maintain proper records in business to determine the loss or income in business. The common people can take suggestions from audits related to tax payments. Case review letters help to understand the actual issues of taxpayers’ payment taxes.
2. The main factors that affected tax compliance in Malaysia
The tax system of Malaysia helps to provide important financial resources that are very important for the administrative system of the country. In addition, there are prevailing tax system with compliance help to maintain a proper administrative system in the country.
According to Saruji, Mohdali & Mohamed, (2019), the tax audit collects data from authentic sources and they maintain the PLS-SEM modelling system. On the other hand, Bulutoding et al. (2020) stated that, the usage of artificial neural network or ANN help to collect quantitative data related to taxation policy. Tax awareness, fairness perception, as well as tax penalties are the parts of ANN and it becomes the most influencing factor in tax compliance.
The finance minister of Malaysia approves the loan policies. The credit or loan agreement was applied in Malaysia with the proper approval of ministers. The loan is approved by the operational headquarters of an organisation. The authorities of tax need to build proper confidence among taxpayers related to the tax system and it helps to remove complexity related to tax payment. Tax liabilities become the most important factor for taxpayers. The taxpayers began to pay court taxes with proper influence as well as awareness related to tax offences. The government used various innovative technologies to spread positive awareness related to tax payments.
Economic growth, as well as development, is completely reflected with the help of proper taxation policy. According to Naeem & Gulzar, (2021), active taxpayers maintain all regulations to prevail over tax regulations. On the other hand, Hamid et al. (2019) stated that Redistribution of resources, as well as development that are the major parts of taxation policy.
The knowledge related to tax, compliance costs as well as morale for tax compliance help to remove the frequency of tax-related offences. Public services hugely improved with the help of proper principles related to taxation policies. The government used various advanced technologies to remove the obstacles related to tax payments. Revenue generation becomes the primary goal of tax audits to maintain proper taxation policy. The higher authorities of taxation policies always maintain administrative policies with the help of various theories as well as models.
The administrative system of Malaysia maintains a self-assessment system of SAS to maintain the Income tax act 1967. Tax system with non-compliance is the biggest problem to maintain effectiveness in the tax collection process. Tax audits as well as tax penalties are part of noncompliance and it increases the tax legislation system of taxpayers.
The tax authorities of Malaysia improve compliance policies with the help of a proper taxation system. Improvement in tax policies becomes part of encouragement for taxpayers. The decision of taxpayers helps to improve the economic growth of the country.