If a best judgment assessment has been issued, immediately you need to compute your actual tax liability and file the necessary tax returns.
NOT filing any of your tax returns is a serious offence. It can lead to penalties up to 300%, or if the matter is taken to court, there will be penalties and even imprisonment.
If there is no conviction, the normal penalty will be an additional 45% on the outstanding tax.
Currently, the Inland Revenue Board (IRB) is diligently taking action against errant taxpayers who have not filed their tax returns, and these returns include income tax returns, Real Property Gains Tax returns and Capital Gains Tax returns.
Under the Income Tax Act 1967, the IRB is permitted to issue estimated returns or best judgment assessments where the taxpayer has failed to furnish a tax return within the timeframe.
This will not prevent the IRB from simultaneously, if needed, taking action against the taxpayer for failing to file the tax return.
In case you have not filed your tax returns, you can be assured that you will be issued an assessment within a short time after the due date and best judgment assessments are currently being issued to many such taxpayers.
Where do the numbers come from?
A best judgement assessment for income tax purposes will be issued based on the previous information that is already in the records of the IRB.
The information will be from the previous year tax returns or information that has been filed by other parties when the taxpayer purchases or has transactions with third parties.
The IRB could also use their internal intelligence and artificial intelligence tools to gather credible information to issue such assessments.
Another important source of information could be information on sale and purchase of unlisted shares or real property which will be available to the stamp office since these transactions require the agreements to be adjudicated and stamped.
Such information can be used to raise assessments for Real Property Gains Tax or Capital Gains Tax.
These figures may or may not be entirely correct, and thereafter to get these figures rectified, it will take time, and the tax and penalties must be paid within 30 days. Any payment after the 30 days will trigger a further 10% penalty.
How do you rectify the situation?
If a best judgment assessment has been issued, immediately you need to compute your actual tax liability and file the necessary tax returns, whether it is income tax, Real Property Gains Tax, or Capital Gains Tax returns.
In case your actual tax liability is lower than the best judgment assessment of the IRB, you need to appeal against the assessment. You must also ensure you have the necessary records including the audited accounts to support the figures in your computation.
Upon submission of your appeal, it is likely your case will be subjected to a tax audit to verify your submissions.
However, any appeal to waive or reduce the penalty will be at the total discretion of the IRB.
In the case of Real Property Gains Tax and Capital Gains Tax appeal, the valuations used to determine the disposal price could also be subject to dispute and it is important to get external professional valuers to support your numbers.
It is best to avoid this situation and file your return on time, or otherwise, to apply for an extension of time before the due date of filing. Again, the extension of time is entirely at the discretion of the IRB.
Appeal process
Even you have received a best judgment assessment, you are still obligated to file a tax return. Otherwise, you are committing an offence. You cannot leave the matter to rest with the issuance of the best judgment assessment.
You must go through the formal process of filing an appeal through submitting a Form Q within 30 days of the issuance of assessment.
Before the matter goes to the Special Commissioners of Income Tax (SCIT) which effectively is the start of the litigation process, there are internal avenues within the IRB to find the resolution for these matters.
Internally, you still have a short period of time of approximately 30 to 60 days to carry on appealing and presenting your case to the IRB branch dealing with your tax file to request for the reduction of assessment.
In the event the request is turned down, you can request the case to be referred to the Dispute Resolution Panel (DRP) which is made up of IRB officers who are unconnected to the case.
You can present your own case to the DRP, or you can engage tax consultants or lawyers to represent you at the DRP proceedings.
If the matter cannot be satisfactorily resolved at this level, then you will have no choice but to take the matter to the SCIT and debate the issue within the legal system.
If you do not appeal against the best judgement assessment, you would have lost your right to appeal and the assessment will become final.
What should be done
In case you have not filed your tax returns for good reasons such as your audited accounts are not ready due extraneous factors beyond your control, then immediately you should seek an extension of time to file your tax returns to avoid this situation.
S M Thanneermalai is the managing director of Thannees Tax Consulting Services Sdn Bhd. The views expressed here are the writer’s own.
