Friday 29 Mar 2024
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This article first appeared in Forum, The Edge Malaysia Weekly on March 28, 2022 - April 3, 2022

At the recent launching ceremony of the Malaysia Inland Revenue Board’s (Hasil) 26th Revenue Day, CEO Datuk Mohd Nizom Sairi attracted much attention when he announced the imminent implementation of a Tax Corporate Governance Framework (TCGF). The purpose: to enhance Hasil’s management efficiency and service delivery to taxpayers.

The TCGF will act as a means for Hasil and taxpayers to develop and maintain a more transparent working relationship in ensuring that the tax compliance process is fair and effective. It will set out techniques and processes within an organisation to identify and assess tax risks, and prescribe appropriate actions to mitigate the impact of those tax risks. We anticipate that more details will be provided in the coming months.

Hasil’s timely introduction of the TCGF should be applauded as it will place Malaysia on a par with Singapore, which recently launched its own Tax Governance Framework (TGF) and Tax Risk Management and Control Framework for Corporate Income Tax (CTRM).

If reference were to be made to Singapore’s TGF and CTRM initiatives, the launch of the TCGF reflects Hasil’s seriousness in listening to taxpayers’ feedback and prioritising educational awareness with the hope of establishing a working relationship with participating taxpayers. This in turn will improve corporate tax compliance in an open and honest manner, via a top-down approach starting from the board of each organisation. This could also be the beginning of an era for a cooperative audit between Hasil and taxpayers.

If the TCGF is similar to Singapore’s framework, Hasil will now have an avenue to:

•     Enhance efficiency, which will lead to more effective use of Hasil resources;

•     Establish and grow mutual trust with taxpayers;

•     Have meaningful and impactful discussions on tax risk management matters with taxpayers;

•     Gather real and practical insights into how taxpayers manage tax risks and the implementation of relevant internal controls; and

•     Understand the commercial reasons behind business decisions being made by taxpayers.

Taxpayers who successfully participate in the TCGF would expect to enjoy the following direct benefits (based on Singapore’s framework):

•     A one-time extended grace period for voluntary disclosure on corporate income tax and withholding tax errors; and

•     A one-time waiver of penalties for voluntary discourse of prior years’ corporate income tax and withholding tax errors.

While these benefits appear attractive, Malaysia’s TCGF could set a higher benchmark by offering the following direct benefits to participating taxpayers:

•     Reduced scrutiny and less tax audit;

•     Accelerated tax refund process;

•     Accelerated ongoing dialogue on technical matters with Hasil;

•     Provide a special 12th-month revision of estimated tax payable; and

•     Provide a three-month instalment option to remit the balance of tax payable.

With the increased scrutiny of Malaysian companies’ adherence to environmental, social and governance (ESG) practice and the parallel importance placed by investors, shareholders and stakeholders, the TCGF offers a great opportunity for companies to differentiate themselves while ticking off the governance box of the ESG practice.

In addition to maintaining good standards of tax governance, companies can indirectly benefit from:

•     Mitigation of potential costly tax risks through early identification and resolution;

•     Achieving a higher degree of certainty with regard to tax positions;

•     Saving time, effort and resources in paying the right amount of tax; and

•     Increased trust from investors, customers and stakeholders.

Is the TCGF for every organisation? In principle, any company should be able to commit to the TCGF as it is a framework centred on the promotion of good tax governance and tax risk management of a company. More specifically, the TCGF would be suited to companies that:

•     Recognise the importance of tax risk management;

•     Intend to strengthen their corporate governance;

•     Need certainty in their tax position;

•     Have complex structures or business models; and

•     Have voluminous transactions.

In view of the impending rollout of the TCGF, it is clear that Hasil is striving to be taxpayer-centric by allowing companies the opportunity to work hand in hand with them. It would be interesting to see the reactions to the TCGF once it is officially rolled out. One thing is for sure: A new era of collaboration between Hasil and taxpaying organisations is about to begin.


Soh Lian Seng is head of tax at KPMG in Malaysia

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