Indirect Tax: Special Voluntary Disclosure and Amnesty Program
As recommended by the Organisation for Economic Co-operation and Development (OECD), tax administrations around the world have in recent years introduced a Special Voluntary Disclosure Program (SVDP). Among others, countries such as the United States of America, United Kingdom, Australia, Japan, Singapore and Indonesia have voluntary disclosure programs. The SVDP allows taxpayers to voluntarily correct their tax affairs and in return certain incentives such as the avoidance of criminal prosecution and reduced rates of penalty and interest.
SVDP is regarded as an international best practice as it enables taxpayers to manage and regularise their tax matters and disclose incomes that were previously omitted. From the tax administrator’s perspective, the SVDP offers an opportunity for revenue collection efficiency by relatively utilising limited resources, avoiding costly audits and investigations, and costly litigations.
In the recent past, Malaysia's Inland Revenue Board (IRB) efficiently collected about RM8 billion in taxes, extra taxes and penalties through its SVDP between November 2018 and September 2019. The SVDP resulted in approximately 6% increase in total tax collection in 2019 (RM145.11 billion). Based on this success story of SVDP for direct taxes, the Minister of Finance,Tengku Datuk Seri Zafrul Tengku Abdul Aziz has, during his Budget 2022 speech, announced that:
This SVDP is also expected to help the government to efficiently increase revenue generation from indirect taxes. This is possible as it provides an opportunity for taxpayers to voluntarily come forward to report and pay their indirect taxes at much lower penalty rates than the existing penalty rates, with less stringent procedures. The RMCD is willing to accept the SVDP in good faith, with no further review and audit to be conducted on the reported information. Thus, taxpayers are encouraged to voluntarily declare any indirect taxes that either have not been paid, underestimated or erroneously reported to the RMCD.
Based on RMCD’s presentation during a Budget 2022 Seminar (organised by Malaysian Associations of Tax Accountants, 25 November 2021), the SVDP would cover the following indirect taxes:
Phases of Implementation
The SVDP is proposed to be implemented in two phases as follows:
It is also proposed that remission of taxes may be granted from 5% to 30% for certain cases. The remission of penalty will be approved automatically without any application to the Director General or Minister of Finance.
What is the Cut-off Period ?
The cut-off period of the SVDP covers up to a period on or before 31 October 2021.
How to Participate ?
A taxpayer who wants to participate in this program has to register through the SVDP system provided by the RMCD.
Who can participate ?
When it comes to taxes, businesses tend to focus more on income taxes rather than indirect taxes. Therefore, with that mentality, less effort is put on the administration of indirect taxes. For example, not all businesses or taxpayers are alert on their responsibility to declare the transaction of imported services even though they are not registered under Service Tax Act 2018. In view of this, the following persons are encouraged to take advantage on the SVDP initiative:
- A registered person (e.g. for omissions in declaring indirect taxes in the previously submitted returns, or for failure to submit the returns, etc.);
- A person who is liable to be registered (e.g. for late registration or non-registration for indirect taxes which has led to the underpayment of indirect taxes, etc.);
- A person who is not liable to be registered (e.g. a non-registered person had erroneously imposed indirect taxes but said the indirect tax has not been paid to the RMCD, etc.);
- A person who has been granted with an indirect tax exemption or facility (e.g. but had non-fulfillment of the conditions, etc.);
- An importer who imports goods (e.g. for incorrect declaration of tariff code upon the importation of goods);
- An importer who imports services (e.g. for failure to account and pay for GST or Service Tax on imported taxable services, etc.); and
- An exporter (e.g. for under-declaration of export duty upon the exportation of goods, etc.)
What Next ?
While waiting for RMCD to publish detailed SVDP information, businesses and taxpayers should begin planning an indirect tax health check to identify any indirect tax liabilities that may need to be disclosed under this SVDP. Thus, we are recommending businesses and taxpayers conduct indirect tax compliance due diligence to identify the right areas of concern to maximise the benefits of the SVDP.
How can SALIHIN TAX help ?
Our team of tax specialists has significant experience in undertaking tax reviews and health checks which can be comprehensive and tailored to specific risk areas. Having successfully assisted numerous clients submitting their cases during the previous SVDP, we assured you that your tax matters will be handled with due care by us.
We can help you in conducting a detailed review, clarifying technical positions on certain transactions, ascertaining the appropriateness of the documentation issued/retained, and most importantly identification of any errors. Upon completion of the review, we can then assist in quantifying the amount of tax underpaid and in the management of the SVDP process with the RMCD. Early preparation is key. Consult us now !
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