Tools Used By Inland Revenue Board (“IRB”) To Detect Under-Reported Income By Individual Taxpayer

Are you a high-net worth individuals?

High net worth individuals are usually:

The Ministry of Finance has announced the RM332.1billion Budget 2022, with federal revenue projected to achieve RM234 billion. So how can the authorities achieve their tax collection target? The answer is by increasing the tax audits and investigation. Apart from companies, high net worth individuals are the target of IRB.

  • Directors/shareholders in family- controlled companies
  • Directors or shareholders of medium and large companies
  • Individuals with bank accounts and funds located overseas
  • Individuals who suddenly have the capacity to buy expensive and luxury assets
  • Individuals who have lavish lifestyles and large remittances in and out of Malaysia.

These individuals are usually under the spotlight of IRB. These individuals also have high chances in getting investigated by IRB and request to prepare a net worth analysis or a capital statement.

Is a growth in net worth a problem?

It becomes a problem when the IRB find that there is a large discrepancy between the increase in the net worth of the individual for the year and the amounts declared for tax purposes in Malaysia. You may end up paying additional taxes on the unjustified discrepancy.

What is net worth analysis?

Net worth analysis, the assets and liabilities will include both local and international balances and this will include: bank balances, properties, fixed deposit balances, investments and insurances and loan balances.

What is capital statement?

A capital statement comprises two forms. Form CP 103 which requires the individual to state all their year-end balances of its assets and liabilities i.e. yearly personal balance sheet, and Form CP 102 which requires the taxpayer to state all his earnings and spending during the year (cash flow income and expenditure account). In short, capital statement is a combination of a statement of the net worth of an individual which represents the assets and liabilities of the individual at the year end and an income and expenditure statement for each year. All figures in the capital statement must be supported by documentary evidence.

What should you do?

Is a good practice for preparing annual net worth analysis/capital statements even though you are not being audited/investigated. This will help you identify any potential risks and eliminate them. It is much easier to be prepared rather than being asked to explain some years down the line. In most cases such preparation will also help you prepare the necessary documentary to support on the figures when you have received monies that should not be taxable such capital gains and foreign source income.

Want to know more?

Please feel free to drop an email to tax@eurogain.com.my or contact Ms Pang from Eurogain Tax Consultancy Sdn Bhd at 016 – 2329434.

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