Highlights

    1. The Special Voluntary Disclosure Program for Income Tax.
    2. The legal basis on the special voluntary disclosure program.
    3. U-turn investigation by the Income Tax department on the SVDP.
    4. Possible action can be taken against the decision by the Special Commissioner on the voluntary declaration SVDP.
    5. Judicial review proceeding against the decision making by the Income Tax department.
A.The Special Voluntary Disclosure Program

 

Q1.What is Special Voluntary Disclosure Program?

Answer:

Special voluntary disclosure program (“SVDP”) is a program to encourage taxpayers to voluntarily disclose their income and offshore assets.

Q2. When was the duration for the SVDP?

Answer:

SVDP was commenced from 3.11.2018 until 30.9.2019.

Q3. What happens after the voluntary tax declaration made under SVDP?

Answer:

All voluntary disclosures of income for year of assessment 2017 and preceding years of assessment will be assessed based on the year in which the income is received/ receivable.

B. The Legal Basis

 

Q4. What law gives the rights to Income Tax department for SVDP?

Answer:

Section 154A of the Income Tax Act 1967 (“ITA 1967”) allows the minister to enforce such program.

Q5. What does Section 154A of the Income Tax Act 1967 provide?

Answer:

Section 154A of the ITA 1967 reads as follows: –

(1). Notwithstanding any other provisions of this Act, the Government may enter into an agreement with any person with regard to ascertainment of his adjusted income or adjusted loss or tax chargeable on him where such agreement is, in the opinion of the Minister, just and equitable or in the interest of the Government or any State Government.

(2). Any such agreement may include :-

(a). provision for disallowing (wholly or in part) outgoings or expenses which but for the agreement would have been allowed as a deduction; or

(b). provision for foregoing (wholly or in part) by any person of his entitlement to any relief or credit due to him under the Act.4;

In short, Section 154A of the ITA 1967 provides that the Government/ Minister shall have the power to come into an agreement with any person with regard to ascertainment of his adjusted income or adjusted loss or tax chargeable on him if the Minister is of the view that the same is just and equitable or in the interest of the Government or any State Government.

Q6. Can U-TURN investigation be made for the same years of assessment despite the SVDP?

Answer:

Yes. As the end product of the SVDP is an assessment, hence a U-TURN investigation can be made by the Income Tax department. Such conduct is governed under Section 91 of the ITA 1967 whereby the Director General of the Income Tax department may make assessment or additional assessment for any year of assessment: –

(a). within 5 years after its expiration in normal circumstances, pursuant to Section 91(1) of the ITA 1967;

(b). no time limit for assessment that is made by fraud and negligent, pursuant to Section 91(2) of the ITA 1967.

Hence, by virtue of Section 91 of the ITA 1967, the Income Tax department would be able to re-assess the assessment made under SVDP just like any other assessment that is made under ITA.

In view thereof, the Income Tax department would have the right to revisit the amount declared by the taxpayers under SVDP. In other word, a U-TURN is always possible under the law.

Q7. Should the Income Tax department do such U-TURN investigation against the declaration made under SVDP?

We are of the view that the Income Tax department should not do so despite they possess the right to investigate the assessment made under SVDP as stated in Question 6 above. We are of the considered view that the Government should not revisit and/or investigate the assessment made under SVDP. The SVDP are made under good faith and voluntary basis, hence the Government should also welcome the same on good faith basis.

As the taxpayer has on good faith steps forward to self-declare its tax without incurring any time and cost from the Government, the Government has moral obligation to accept the said voluntary declaration on good faith basis too. If the Government chose to revisit the assessment just because the law allows them to do so, that would not be within the legitimate expectation of the taxpayers. The Government will be labeled as a “promise breaking” government, which any public administrative body should avoid.

Should the government insist on investigating the assessment made under SVDP, that will discourage the taxpayer to act on good faith basis in making payment on the tax.

Q8. What is possible action can be made with regard to the said U-TURN decision?

Answer:

There is a room for judicial review to review the decision making of the said U-TURN decision. Despite the Income Tax department is of the legal right to investigate the years of assessment under SVDP, but it may be subjected to judicial review should the way in which of the said investigation was done unlawfully and/or procedurally improper.

We refer to the case of Infra Quest Sdn Bhd Lwn. Ketua Pengarah Hasil Dalam Negeri and Government of Malaysia v. Dato’ Sri Mohd Najib Hj Abd Razak whereby it is settled that the rights of the taxpayer are protected and guaranteed under Section 99 of the ITA 1967 by way of an appeal to the Special Commissioner. Subsequently, if the taxpayer is dissatisfied with the decision of the Special Commissioner, he may appeal to the High Court against the said decision under the judicial review proceeding. Hence, judicial powers still remain vested in the High Court to determine the correctness of the assessments raised by the taxpayers through the Lembaga Hasil Dalam Negeri. In short, upon the disposal of the appeal to the Special Commissioner under Section 99 of the ITA 1967, the court would have the power to quash any of the decisions made by the income Tax department on the additional assessment.

THIS FAQS ARE PREPARED AND PUBLISHED BY MESSRS GAN & ZUL, ADVOCATES & SOLICITORS, KUALA LUMPUR.
Prepared by:

Ben Lee Kam Foo (Partner)
Head of Dispute Resolution
Arbitrator & Adjudicator
Fellow of ADR, AIAC
Cross Border Taxation Planning

Nur Amalin Shahida Sabidi (Associate)
General Dispute Resolution
Commercial Retail Tenancy Disputes
Contractual, Land and Commercial Disputes
Matrimonial Disputes

Nabila Zakariah (Associate)
General Dispute Resolution
Appellate Division
Contractual, Land and Commercial Disputes
Matrimonial Disputes

Gan & Zul is an established legal firm in Malaysia which consists of experienced litigation lawyers. Our firm provides a wide spectrum of legal services covering various aspects of laws includes dispute resolution, debt recovery, land, bankruptcy, insolvency and corporate dispute. We are also a firm construction lawyers based in Kuala Lumpur.
If you have any queries or require additional information, kindly email us at kul.litigation@ganzul.com or call us at 03-2242 3836

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