Navigating Malaysia's evolving tax landscape

The Star

09-06-2025

Malaysia's tax environment is undergoing a significant transformation.
With the Inland Revenue Board of Malaysia (IRBM) reaffirming its commitment to national tax governance, tax compliance is being reinforced through strategic partnerships, targeted programmes, and the deployment of advanced data analytics, which demands far more than routine filings.
The shift to the self-assessment system (SAS) across more tax types, combined with the recent tightening of the Tax Investigation Framework, signals that businesses must now adopt a more proactive and strategic approach to managing their tax affairs or risk penalisation under an increasingly vigilant tax authority.
Paradigm shift in responsibility
Malaysia's transition to the SAS, which began with income taxes in the early 2000s, marks a significant reform in tax administration. The SAS has now been extended to cover Real Property Gains Tax from Jan 1, this year, with phased implementation for Stamp Duty beginning from Jan 1, next year. This transition aims to promote voluntary compliance while reducing administrative burdens.
Under SAS, the responsibility for correctly interpreting and applying tax laws rests squarely on taxpayers.
They must accurately compute and declare their own tax liabilities. Errors or omissions may lead to tax adjustments and penalties.
Businesses are expected to proactively estimate their tax positions, monitor them routinely to avoid underestimation penalties, and ensure their accounting systems are equipped to meet SAS demands.
To support this shift, IRBM has issued public rulings, guidelines, and practice notes, simultaneously intensifying audit efforts to ensure compliance.
Evolving tax enforcement
Under the current structure, the Strategic Compliance Branch and Criminal Investigation Branch are led by one of the IRBM's deputy chief executive officer.
In each state, the respective state IRBM director oversees the strategic compliance and tax audit functions. While there is only one Criminal Investigation Branch serving the country, as our nation strengthens its focus on tax compliance, IRBM is ensuring comprehensive coverage in its enforcement.
The Strategic Compliance Branch focuses on high-risk taxpayers, employing in-depth investigation procedures (following a tax investigation framework) including surprise visits and on-the-spot document and data requests. Meanwhile, the Criminal Investigation Branch handles serious tax crimes, such as fraud and wilful concealment, often collaborating with other enforcement agencies.
A key enforcement priority is real transaction verification. Auditors now examine cash flows, supplier accounts, and capital statements to confirm the legitimacy of transactions. These audits carry significant authority, with findings potentially leading to immediate penalties or legal action.
The compliance pyramid
IRBM's enforcement strategy is increasingly guided by a compliance-pyramid model, similar to that adopted by the Australian Taxation Office. This model segments taxpayers based on behavioural profiles – from compliant to non-compliant – and tailors enforcement strategies accordingly.
At the base of the pyramid are educational initiatives, reminders, and simplification measures for those willing to comply but lacking resources. The next tier involves facilitation through programmes such as Tax Corporate Governance and audits.
At the apex are the shadow economy and deliberate tax evaders – groups with persistently low compliance levels – which are the primary focus of strategic compliance efforts and investigations.
Where are we now?
Tax investigations in Malaysia are becoming increasingly rigorous and data-driven. Unlike routine audits, investigations involve unannounced visits, document seizures, and interviews.
The updated Tax Investigation Framework, effective May 31, last year, provides greater transparency and clearly defines the roles and responsibilities of all parties involved.
Recent media coverage has widely reported IRBM's enforcement activities, including high-profile cases involving celebrities and corporations. These headlines raise questions about whether all featured taxpayers are truly evaders or if public perception is shaped by sensationalised headlines.
With over eight million taxpayers and a compliance rate exceeding 80%, IRBM is now intensifying their focus on fraud and evasion.
The phased implementation of e-Invoicing is expected to further enhance transparency, enabling real-time transaction monitoring and reducing black-market activity.
Be prepared, stay compliant
It is prudent for businesses to proactively plan their tax structures, upgrade accounting systems, and consider integration or artificial intelligence.
When receiving correspondence from IRBM, it is crucial to identify the issuing branch as this will indicate whether it pertains to an educational audit, civil investigation, or criminal investigation.
Understanding the nature of the audit is the first step toward crafting a measured response.
Above all, businesses should remain calm, be aware of their rights, and engage professional advisors where necessary. Rather than seeking shortcuts, invest in staff training, conduct regular risk assessments, and maintain robust records to ensure compliance in this evolving landscape.
Soh Lian Seng is head of tax for KPMG in Malaysia. The views expressed here are the writer's own.