MALAYSIA - Special Voluntary Disclosure Programme

May 2019

During the 2019 Malaysian Budget announcement on 2 November 2018, the Minister of Finance introduced a new Special Voluntary Disclosure Programme (SVDP) for eligible taxpayers. This programme is offered to encourage taxpayers to voluntarily disclose any unreported income and settle the tax arrears, if any, within the period of 3 November 2018 until 30 September 2019. The programme was further updated on 7 April 2019.

This programme is in line with the implementation of the Common Reporting Standard (CRS) for the Automatic Exchange of Financial Account Information (AEOI) on 30 September 2018 where the Inland Revenue Board of Malaysia (IRBM) will exchange through AEOI with the participating foreign tax authorities of those non-residents and would also be receiving AEOI on Malaysian residents from other countries' tax authorities.

The IRBM has indicated that it will accept in good faith all voluntary disclosures made during this programme period and no further review will be made on the reported information.

In line with this introduction, the IRBM has issued the Operational Guidelines No. 1/2018 and a set of frequently asked questions on the SVDP to the public. Under these guidelines, the SVDP covers the following cases:

Unreported income, under-declared income and over-claimed expenses/reliefs/ deductions/rebates, under the Income Tax Act (ITA) and the Petroleum Income Tax Act (PITA);
Unreported real property gains under the Real Property Gains Tax Act (RPGTA);
Instruments not stamped exceeding six (6) months after the stamping period; and
Cases under audit or investigation.

Under the existing Tax Audit Framework 2018, penalties imposed by the IRBM are as follows:

If there is understatement or omission of income arising from the audit findings, a penalty under Section 113(2) will be imposed under the ITA equal to 100% of the amount of tax payable. However, the DGIR may use discretion to impose a penalty at a reduced rate of 45% on the understated tax under Section 124(3); and
Penalties for a taxpayer that meets its tax return filing deadline and makes a voluntary disclosure before the commencement of an audit are as follows:

Timing of Voluntary Disclosure	Penalty Rate
Within 60 days from the tax return filing deadline	10%
After 60 days but less than 6 months from the tax return filing deadline	15.5%
More than 6 months from the tax return filling deadline	35%

After the introduction of the SVDP, the abovementioned penalty rates are further reduced according to payment deadlines as follows:

Category	Period of SVDP	Penalty rate	Payment to be made on or before
Under-declared income and over-claimed expenses/ reliefs/deductions/rebates, under ITA and PITA; and Unreported real property gains under RPGTA	3 November 2018 until 30 June 2019	10%	1 July 2019
	1 July 2019 until 30 September 2019	15%	1 October 2019
Unstamped instruments	3 November 2018 until 30 June 2019	10% or a minimum of RM50	1 July 2019
Unstamped instruments	1 July 2019 until 30 September 2019	15% or a minimum of RM100	1 October 2019

Failure to settle the tax within the stipulated SVDP deadlines will result in an increase in tax, and legal action will be taken. Minimum penalty rates of 45% and up to 300% will be imposed after the expiry of SVDP on 30 September 2019 to those taxpayers who fail to file their respective tax returns correctly and accurately.

In brief, the SVDP provides taxpayers with an opportunity to report and pay Malaysian tax on undeclared income at much lower penalty rates than the existing penalty rates, with less stringent procedures, given the IRB’s willingness to accept the SVDP in good faith, with no further review to be made on the reported information.

Christopher Low Hon Peng
chrislow@bdo.my