Have you ever received a letter with the characters ‘LHDN’ on the envelope, out of the blue? LHDN, if you haven’t already know is Lembaga Hasil Dalam Negeri or Inland Revenue Board. If it is not income tax season and this comes out of nowhere, chances are you are being audited.
No need to panic
In most (not all) cases, the receiver of this letter would think that he might have kept his tax assessments on time. You probably thought that you have not breached anything and declared everything as to how they are supposed to so there must have been a mistake that you are being audited by IRB. The truth is, just because you file your taxes on time and accurately does not guarantee you won’t be audited.
Why and how does this happen?
Basically, LHDN carries this out to validate the accuracy and details of your income tax assessment. It could come in 2 ways, namely desk and field audits respectively. The former is most common where you will need to provide all the information required by LHDN and it can be done at their office. Meanwhile, the latter involves LHDN sending agents to your premise and checking your records, usually involving business owners. Audits are carried out so that taxpayers are aware that they should comply with the regulations and requirements of the Malaysian income tax laws.
Anyone can be selected for a tax audit. One thing for sure, you are not chosen ONLY because there are discrepancies. They use a risk analysis system that will determine who is selected for an audit. Besides that, it can also come through information received from third parties or in certain types of industries.
So, what should you do?
First of all, there is no reason to panic or be concerned if you have nothing to hide. Be sure that you have all the invoices, receipts and related documentation to support your case. In whatever case, you should keep all these documents for up to 7 years before you dispose of them. If you receive the letter from LHDN, check for the following:
- Which year are you audited – LHDN would inform you on which year’s assessment will you be audited.
- What areas are you being audited – It would be stated in the letter what are you being audited for. If it is lifestyle expenses, then prepare the receipts that you paid for such expenses for that particular year. The same goes for the other reliefs.
- Visit the LHDN office with the documents required and then inform the officer about your case. They would have the information in their system and upon receiving them, they will evaluate your tax again for that year (that you are being audited).
- You can then leave the office and wait for the notification from LHDN. Take note that after the audit, you might be required to pay additional taxes or you could have paid in excess.
If there are any details that you have ‘conveniently’ forgotten or declared wrongly, it would be better, to be honest, and come clean about it. There is never any reason to escape as it would be discovered anyhow. If you have to pay additional tax and the amount is high (in thousands), you could arrange to pay in installments to ease your burden.