The Inland Revenue Board of Malaysia (IRBM) issued an amended tax audit framework on 1 May 2017. The aim the amended framework is to ensure that tax audits are carried out in a fair, transparent and impartial manner. The framework outlines the rights and responsibilities of audit officers, taxpayers and tax agents in respect of a tax audit. In addition, the aims of the framework include assisting audit officers to carry out their tasks efficiently and effectively, and assisting taxpayers in fulfilling their obligations.

Generally, a tax audit covers a period of one year of assessment, determined in accordance with the audit focus criteria of the department. However, the tax audit may be extended to cover a period up to five years of assessment, pursuant to the issues uncovered during an audit. This five year time limit is not applicable to cases involving fraud and tax evasion whether intentional or unintentional.

If it is discovered following an audit that there has been an understatement or omission of income, a penalty will be imposed under subsection 113(2) or paragraph 44B(7)(b) of the ITA under which the penalty rate is equal to the amount of tax undercharged.

Where a taxpayer, after submitting a return and being assessed to tax, makes a voluntary disclosure after the due date but not later than 6 months from the due date, the penalty rates are ranging from 10% to 15.5% depending on the amount of time passing before the voluntary disclosure is made.

The concessionary penalty rates for voluntary disclosure other than cases mentioned above range from 20% to 35% depending on the period from the due date of submitting the tax return form.

The amended framework is effective from 1 May 2017 and replaces the tax audit framework dated 1 February 2015.