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Under Malaysia’s Income Tax Act 1967, taxpayers who wilfully evaded tax will be charged with tax evasion offences, carrying severe penalties and the possibility of imprisonment. The medical professionals are no exception. The Inland Revenue Board of Malaysia (IRB) currently has identified the medical profession as the alleged prime target for tax evasion activities.

This article attempts to shed light on the scope of tax evasion, the possibility of tax mitigation factors and the going forward measurement.

Tax evasion

Tax evasion is a severe offence chargeable under Section 114 of the Income Tax Act 1967. The scope would be as follows:

a) Omits from a return made under this Act any income which should be included;

b) Makes a false statement or entry in a return made under this Act;

c) Gives a false answer (orally or in writing) to a question asked or request for information made in pursuance of this Act;

d) Prepares or maintains or authorises the preparation or maintenance of false books of account or other false records;

e) Falsifies or authorises the falsification of books of account or other records; or

f) Makes use or authorises the use of any fraud, art or contrivance.

Upon conviction, the taxpayers will be liable to

a) A fine not less than RM1,000 and not more than RM20,000;

b) Imprisonment for a term not exceeding three years; or

c) Both; and shall

d) Pay a special penalty of treble the amount of tax which has been undercharged in consequence of the offence or which would have been undercharged if the offence had not been detected.

Tax evasion is a serious offence and in generally it encompasses cash sales underreported, fictitious purchases or false invoice purchase to reduce tax illegally. In summary, tax evasion involves a scheme that is carrying out with the sole intention to understate incomes or overstate expenses to reduce income tax through illegal means.

Application on the medical profession

In the case of the medical profession, medical doctors carrying on private practice in clinics and polyclinics which have understated its fees, especially cash fees received from patients for income tax, would be seen as an act of evasion.

The clinic may have embarked on inflating the purchases of drugs, fictitious invoices on medical equipment purchase, excessive claiming expenses on salaries to family members with no actual payment all of which will be seen as tax evasion with the intention to understate the income tax.

In the case of medical professionals providing consultancy services to private hospitals using Sdn Bhd to divert its income or diverting into its clinic without commercial substance, involving unreasonable or excessive salaries to family members or arbitrarily splitting incomes into various entities may be viewed as an attempt to evade tax.

This is very much dependent on the documentation, the agreement, the basis of allocating and also the underlined activities provided by such Sdn Bhd in earning such income. Whether it is an evasion or not is very much depends on its own circumstances and factual matrix of each case. It has to be reviewed and explained satisfactorily to the IRB officers.

Failing which, it would be tax evasion. Medical doctors have no recourse but to appeal to the Special Commissioners of Income Tax or alternatively seek the High Court to review IRB’s action as to its correctness under a judicial review application.

Importance of record-keeping

Record-keeping is an essential mandatory requirement under the Income Tax Act 1967 in the self-assessment regime. The record ranges from the invoices issued to the hospital, payment received from the patients, cash books, bank statement and also all other journals for accounting record purposes. The Act requires the transactions to be recorded within 60 days from the transactions.

The failure to keep complete set of accounts for seven years would be amounting to an act of tax evasion. In 2016, one has to keep the complete set of accounts from 2009 till 2015. Failure to keep the accounts for seven years is an offence [Section 119A] and upon conviction will be liable to

a) Fine not less than RM300 and not more than RM10,000;

b) Imprisonment for a term not exceeding one year; or

c) Both

Moving forward

Medical professionals may be wrongly advised on the various schemes or suggestions to reduce the tax, not knowing that it has encroached into the tax evasion regime. It is therefore advisable to come forward to voluntary disclosure to the IRB and admit such a mistake or wrongdoing.

By doing so, they would have peace of mind and what more they would have entitled them to a lower penalty of 15 percent tax undercharged. This however has to be carried out by Dec 31, 2016. This is special amnesty scheme proposed by IRB which needs serious consideration.


CHOONG HUI YAN is a tax specialist. She can be contacted via [email protected]

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