The Inland Revenue Board of Malaysia (“IRBM”) has published an updated Tax Audit Framework for Finance and Insurance (“the Framework”) which revokes Tax Audit Framework – Finance and Insurance dated 1 Jun 2015. The Framework comes into effect on 18 November 2020.

Under the Self-Assessment System (STS), tax audit is the main activity of the Inland Revenue Board of Malaysia (IRBM) to enhance voluntary tax compliance. A taxpayer may be selected for audit at any time. The Tax Audit Framework for Finance and Insurance issued by the IRBM aims to ensure that tax audits on taxpayers in the Finance and Insurance Industry are conducted fairly, transparently and equitably. This framework outlines the rights and responsibilities of audit officers, taxpayers and tax agents. In general, this framework aims to assist audit officers to perform their duties more efficiently and effectively, and to assist taxpayers to fulfil their responsibilities.

A tax audit is carried out comprehensively and can cover up to three (3) years of assessment. However, the years of assessment covered to raise the assessment may be extended to five (5) years of assessment depending on the audit issues found. The time required to carry out an audit visit is between one (1) to three (3) days. However, the period may be extended depending on the factors.

In the event of an understatement or omission of any income as a result of the audit findings, penalty may be imposed under subsection 113(2) of the ITA equivalent to the undercharged tax amount (100%). If the taxpayer commits a repeated offence after being audited or investigated, the penalty will be imposed under subsection 113(2) of the ITA at a rate of 55% of the tax undercharged.