Improvement of Corporate Tax Audit: Factor of Increasing Tax Compliance in Malaysia

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  • Topic: Tax, Taxation, Tax law
  • Pages : 16 (5470 words )
  • Download(s) : 184
  • Published : June 25, 2012
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Improvement of Corporate Tax Audit: Factor of Increasing Tax Compliance in Malaysia
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Table of Contents

Executive Summary3
Introduction………………………………………………………………………………………..4 Tax Compliance, Tax Evasion and Tax Audit…………………………………………………….4 Tax Audit in Malaysia…………………………………………………………………………….6 Organization Structure…………………………………………………………………………….8 Tax Audit Process…………………………………………………………………………………9 Tax Audit: Constraints and Problems……………………………………………………………11 Recommendations………………………………………………………………………………..16 Conclusion……………………………………………………………………………………….18 References……………………………………………………………………………………….19 Appendix………………………………………………………………………………………...20

Executive Summary
The Malaysian tax system follows the concept of self-assessment system (SAS). Under the SAS, the government trusts and gives taxpayers full responsibility to calculate, to pay and to report their tax due on their own. The success of SAS not only depends on the good tax administration but also depends on the taxpayer awareness, which is indicated by the taxpayer compliance in fulfilling his obligation. In order to enhance the level of tax compliance, the Inland Revenue Board of Malaysia (IRBM) considers that it can be achieved by law enforcement besides tax consultation and tax service. Law enforcement comprises of tax audit, tax investigation and tax collection.

Tax audit becomes important since it can cause a deterrent effect to increase taxpayer compliance. Tax audit plays an important role in determining the extent to which taxpayers can be made to comply with the laws and regulations. Tax audits are particularly useful in checking the most subtle forms of non-compliance i.e. evasion and avoidance.

However, the low audit coverage of the IRBM, especially on field audit, has been below 5% and complaints from taxpayers and tax agents have been raised on the field audit approach. What kind of constraints and problems does the IRBM have in conducting tax audit?

The research paper purposes are to identify constraints and problems in conducting tax audit in Malaysia and to give possible recommendations to overcome constraints and problems. The concluding remark of research paper is that in conducting tax audit, the IRBM has internal constraints which are categorized under audit coverage and audit technique. The low of audit coverage and lack of qualified officers are two main factors which affect the level of tax compliance. Through the observation and inquiry on Japanese Tax System, some possible recommendations has been suggested to increase the effectiveness and efficiency of tax audit.

Introduction
In the era of Self-Assessment System (SAS), tax audit is a routine activity. The introduction of SAS could increase noncompliance risk because of its voluntary nature, but tax authorities will be able to enhance voluntary compliance through tax audit. Since the introduction of SAS for corporation in 2001, Malaysian tax authority has emphasized tax audit in order to ensure the compliance at optimum level. However, there are still challenges for tax authority to need further improvement i.e. audit coverage is still at lower level (below 5%), human resource development and short term versus long term target/goal dilemma. What is the best audit approach that leads to higher tax-compliance? Tax authorities have internal and external constraints to tackle with. We will look into the current audit approach/practice of the Inland Revenue Board of Malaysia (IRBM) on corporate taxpayer, which has contributed more than 70% of total direct tax revenue collection.

Tax Compliance, Tax Evasion and Tax Audit
According to Andreoni, Erard & Feinstein, tax-compliance should be defined as taxpayer’s willingness to obey tax laws in order to obtain economy equilibrium of a country. While Kirchler states it as the most neutral term to describe taxpayers’ willingness to pay their taxes. McBarnet suggested that tax-compliance should be perceived in...
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