I am writing in response to the article ‘Country may lose senior doctors due to IRB witch-hunt’.

On Nov 26, 2015, a group of doctors has been investigated by the special task force from the Inland Revenue Board (IRB) in Seremban. The crux of the issue is legitimacy of using Sdn Bhd to carry on medical business.

A hospital on one hand requires a contract to be signed between the hospital and the doctor individually, which gives an avenue to the IRB to insist on income to be reported by the doctor on a sole proprietorship basis and not reported income as a Sdn Bhd.

One must first examine the fundamentals of having a contract between the medical hospital and doctor is merely for the purpose of negligent attribution. It has no relevancy for income tax purposes.

The main issue is using Sdn Bhd is legitimate in most service sectors be it doctors, accounting firms or management services. Or even legal practitioners providing legal consultancy.

It is on the payment of director fees and the expenses within the Sdn Bhd is the tax issue, whether such payment of director fee is reasonable, incidental to the effort and contribution of the director.

The using of the Sdn Bhd to carry on medical business is an acceptable practice for at least 30 years. The Sdn Bhd accounts have been audited by an auditor which is the profession regulated and governed by the Malaysian Institute of Accountants (MIA).

This professional has been issued an audit report, making the necessary accounting disclosure in the said audited report; giving an irresistible conclusion that carrying on medical business using Sdn Bhd is a commercially acceptable scheme. It is now the usage and mechanism of operating the Sdn Bhd that matters.

The question of fairness arises on the charge of incorrect return and payment of additional tax of the incorrect return as the doctors have all this while been seeking professional auditors.

The Inland Revenue Board on one hand, has the full discretion and statutory power under the Income Tax Act 1967 to raise additional assessment on the taxpayer and impose a penalty for any incorrect return submitted. Therefore, the pragmatic approach is to engage a professional to explain, discuss and submit further and better documentation to resolve this issue. And the accounting entry must be reflected.

Meanwhile, in regard to the contracts between hospitals and doctors, with proper legal and tax guidance, the use of Sdn Bhd can effectively fulfil the hospital requirement on negligent issues yet satisfying the doctors’ wishes to use Sdn Bhd as a business vehicle to carry on a medical business.

The option of settlement at court is not advisable, as going to the legal process is time-consuming and costly and one should first engage a consultant with tax knowledge to resolve the matter with IRB in all manners.