Viable avenue: A pedestrian passing by an LHDN branch. At least 50,000 new taxpayers are expected to participate in SVDP 2.0, with an estimated tax collection of RM1bil.
IN an unexpected yet unsurprising move, the Special Voluntary Disclosure Programme (SVDP) was reintroduced in Budget 2023 tabled on Feb 24.
This programme was first introduced by the government in the Budget 2019, which provided individuals or businesses to report any incorrect and/or undisclosed income to the tax authority, with a 10% or 15% discount applied to penalties on additional taxes disclosed by participants.
As an added incentive, participants to SVDP 1.0 were assured by the Inland Revenue Board (LHDN) that no further audit or investigation exercise will be carried out on the years of assessment (YA) where voluntary disclosure on a good faith basis has been made and accepted.
As a result, 286,000 taxpayers (of which 11,000 are new taxpayers) participated in the programme, delivering roughly RM7.8bil in additional taxes to Malaysia’s coffers.
Taking a page from the success of SVDP 1.0, the Royal Malaysian Customs Department, in 2022, introduced a voluntary disclosure and amnesty programme that went a step further to provide a penalty remission between 50% and 100% as well as a remission of tax between 5% and 30%.
The reception of the programmes was successful even beyond the authorities’ expectations and provided the government with a viable avenue to expand its revenue base progressively – a concept well aligned with the current Prime Minister’s Malaysia Madani concept to achieve an inclusive and sustainable economic growth.
For those who missed out on the chance to participate in the initial programme, the SVDP 2.0 will provide them a second chance to make it right – this time with enhanced benefits where they will enjoy 100% remission of penalty on additional taxes to be imposed.
It is expected that the detailed guidelines and mechanism will be issued by the authorities within the next few weeks.
Through several dialogues held recently with the authorities, we can expect the SVDP2.0 to be built around the following parameters:
> SVDP 2.0 will commence from June 1, 2023 to May 31, 2024 for a period of one year.
> It will cover both direct and indirect taxes (administered by LHDN and Customs).
> Made available to all categories of taxpayers (except those currently under audit/investigation)
> Assurance that no further audit or investigation exercise will be carried out on the YAs where voluntary disclosure on a good faith basis has been made and accepted.
It was reported that LHDN anticipates at least 50,000 new taxpayers to participate in SVDP 2.0, with an estimated tax collection of RM1bil on top of the collection from existing taxpayers already participating in the programme.
It’s important to note that the success of SVDP1.0 did come with a few challenges.
The assurance not to conduct a tax audit/investigation on the YAs disclosed was provided in the form of a “tax clearance letter” issued by LHDN.
However, it was widely argued that the letter has no legal authority in the event LHDN reneges on its “promise”.
This lack of legal standing deterred some taxpayers from participating in the programme.
Learning from this experience, to foster trust in the execution of SVDP 2.0, LHDN could consider issuing a composite assessment (i.e., form X1 for individuals or form X2 for businesses) as prescribed under section 96A of the Income Tax Act, 1967 (ITA).
Under the ITA, a composite assessment is deemed to be final and conclusive with no avenue for any party to reassess the YAs covered under the composite assessment.
Another burning criticism is that non-compliant taxpayers are rewarded instead of being punished.
This group of taxpayers may even take advantage of the SVDP to declare lower unreported income or false adjustments since acceptance is made on a good faith basis without any justification.
This might create an unintended consequence whereby compliant taxpayers may decide to defer on paying their taxes in the hopes of such tax programmes to be regularly made available.
To ensure the scale of equality is balanced, LHDN should consider only accepting disclosure with a reasonable basis and/or with relevant supporting documents. LHDN could go a step further by providing a tax remission (in addition to the 100% tax penalty waiver) to compliant taxpayers who participate in SVDP 2.0 after undergoing a review on their past tax position.
SVDP 2.0 should not be seen as a short-cut tool for the government to collect additional taxes.
The government should take this opportunity to further its initiative for inter-agency collaboration.
Smooth repatriation
For example, LHDN could work hand-in-hand with Bank Negara to facilitate the smooth repatriation of undeclared income stashed overseas subsequently declared through SVDP 2.0, and in turn, work together with the Investment, Trade and Industry Ministry to provide incentive to taxpayers to reinvest these funds in our nation building process.
In the same vein, taxpayers should seriously consider participating in SVDP 2.0 as it’s not known whether this programme will continue beyond the second cycle. Herein lies your opportunity to bring your tax affairs to order in a risk-free manner.
The SVDP initiative has been shown to enable a win-win situation for both taxpayers and the authorities.
More importantly, it allows for open dialogue and engagement between the government and taxpayers based on trust, which is much needed right now.
Soh Lian Seng is head of tax of KPMG in Malaysia. The views expressed here are the writer’s own.
