New tax rules will promote better compliance, says expert

 

Deloitte Malaysia says it is important for taxpayers to understand the new power granted to LHDN. (AFP pic)

KUALA LUMPUR: The proposed amendments to give the Inland Revenue Board (LHDN) power to call for bank account information are intended to promote tax compliance and provide the ability to recover tax debts, says Deloitte Malaysia.

Mohd Fariz Mohd Faruk, the tax, audit and consultancy service firms’ executive director, said it was important for Malaysian taxpayers to really understand this new power granted to LHDN so they are not misguided.

“The power to call for bank account information must be for the purpose of making a garnishee order application. One must be clear of the definition of garnishee proceedings,” he said in a statement today.

A garnishee refers to a party who is instructed by way of a legal notice to surrender money to settle a debt or a claim.

Yesterday, the Dewan Rakyat passed the Finance Bill 2021, which includes the proposed amendments to Section 106A of the Income Tax Act, whereby the LHDN would no longer have to inform taxpayers when requesting their bank account details from banks for review or investigation.

Fariz said garnishee proceeding was a process of enforcing a money judgment by the seizure or attachment of debts due or accruing to the judgment debtor.

“This would mean that a civil proceeding must have been instituted against a person and a judgment obtained against that person for LHDN to be able to obtain the bank account information of that person from the financial institutions.

“The purpose of obtaining such bank account information is for LHDN to make the application to the court for a garnishee order,” he explained.

In addition, he said Subsection (2) of the proposed amendment to Section 106A prohibits the financial institution from disclosing to any person that such request was made to the financial institution.

“This does not mean that LHDN has a free hand to ask for bank account information of a taxpayer from financial institutions in ‘secret’ or ‘private’ without the taxpayer’s knowledge,” he said.

Nevertheless, he said banks would also need to set up robust processes to address the request for bank account information by LHDN under the new rules to protect the confidentiality.

“Failure to do so would expose the banks to a fine or imprisonment for a term of six months or both under Section 120A of the Income Tax Act 1967,” he said.

As such, he said the public should not be worried by the introduction of the new Section 106A as it may not be widely applicable or implemented to people who have been complying with their income tax obligations. - FMT