Study of the Special Voluntary Disclosure Program for Indirect Tax Study of the Special Voluntary Disclosure Program for Indirect Tax Study of the Special Voluntary Disclosure Program for Indirect Tax

As the Nation gathers virtually to celebrate the country’s 64th Independence Day, the Ministry of Finance (“MOF”), for the first time in history and in line with international best practices, issued a Pre-Budget Statement (“PBS”) for Budget 2022, which is scheduled to be tabled on 29 October 2021.  Please click on the above header link for a copy of the PBS.

Aim at enhancing the transparency on the annual budget process as well as an avenue for the Rakyat to monitor the country’s fiscal management through specific metrics, this is indeed a positive and welcomed move to increase public and investors’ confidence.  The PBS also provides a preliminary overview on the direction, approach and expected benefits of Budget 2022.

Indirect tax was a notable mention in the PBS, as the Government recommends to study a proposed implementation of a Special Voluntary Disclosure Program (“SVDP”) to increase tax revenue through increased tax compliance.  Through this program, taxpayers are encouraged to voluntarily come forward to declare any tax that either has not been paid, underestimated or erroneously reported to the Royal Malaysian Customs Department (“RMCD”). Note that currently there is a Voluntary Disclosure Form made available by RMCD for specific scenarios. Also, to those who remember, income tax introduced a SVDP a few years back.

Mooted by the Organisation for Economic Co-operation and Development (“OECD”), such program enables taxpayers to manage and regularize their tax affairs and to declare the income which have been concealed in the past.  In a way, it provides taxpayers a proper channel to be compliant and responsible taxpayers.  From the Government’s perspective, it is a way to enhance revenue collection using relatively limited administrative resources, saving costly and contentious audits, litigation and criminal proceedings.

Whilst the mechanism and feature of the SVDP is being studied, from the taxpayers viewpoint, it is hoped that such program, if approved, will provide certainty on, amongst others:

• Proper and defined process to make the disclosure
• What will happen if they make a full and accurate disclosure and whether full penalty/ charges will be imposed
• Reassurance that for those who participated, there will not be any future audit for the years declared and that they will not be unduly targeted for enhanced scrutiny in the future
• Confidentiality of the information that is provided (concern for publicity/ reputational damage and personal security)
• Assurance that the terms for the additional tax to be paid will not be prohibitive

From the Malaysian indirect tax perspective, the SVDP could be beneficial for the following:

• Disclosure due to Transfer Pricing adjustments, particularly for Import Duties and Sales Tax
• Late registration for Sales Tax, Service Tax or any other indirect taxes and the corresponding late payment of taxes
• Under-reporting of duties and taxes which were missed out or due to inaccurate classification
• Omission to account for imported taxable service
• Reporting of errors found during internal health checks
• Underpayment of GST (it is noted that a penalty remission program for GST was introduced from 1 May 2021 to 31 August 2021)

At the end of the day, a successful Voluntary Disclosure Program must strike a balance between providing sufficient incentives for those engaged in non-compliance to come forward but at the same time not rewarding or encouraging such conduct. As the name suggested in the PBS, it is a ‘Special’ Voluntary Disclosure Program – to what extent it will cover and how long the program will be remains to be seen.  Nevertheless, this is certainly an area to look out for in the coming months leading up to Budget 2022.

Our highlights are intended to provide a general overview of the key proposed tax changes and should not be used or relied upon as a substitute for detailed advice or as a basis for formulating business decisions.

Should you have any questions or require further clarification, please do not hesitate to email or contact any of our Executive Directors, Directors, Associate Directors or Managers whom you are accustomed to dealing with or who are responsible for the tax affairs of your organization.