Goods and Services Tax Audit Framework
The Royal Malaysian Customs Department (Customs) launched the Customs Blue Ocean Strategy Operation (Ops CBOS) on 1 September 2016 with the target of auditing 50,000 GST-registered persons. Customs announced that the selection of these persons for audit was conducted at random. Approximately 15,000 Customs officers will be involved in the first phase of the operations which will run until the end of the year.
According to Customs, approximately one third of the 50,000 companies are still struggling with the compliance of the new GST regime. The primary problem identified in the first phase of the Ops CBOS was a failure to provide accurate information in GST returns, which Customs believe is due to incorrect guidance. It is against this background that the new Goods and Services Tax Audit Framework (Framework) was released on 8 September 2016. The Framework is intended to ensure that GST audits are carried out "in a systematic, transparent and fair manner" for GST-registered persons.
Some of the key takeaways from the Framework include:
- Desk Audit - An audit officer may request for the auditee to submit certain information and documents to Customs for audit review purposes. The scope of documents which will usually be requested include organisation chart, incorporation documents of the company (Form 9, Form 24, Form 44 and Form 49), GST returns (Form GST-03), invoices, bank statements, management accounts and contracts.
- Audit Visit - Customs may also choose to visit an auditee's premises for an audit visit. An auditee will be notified of the audit visit 14 days prior to the date of audit by fax, e-mail or through the MyGST System. An auditee may request in writing to defer the date of the audit if there are reasonable grounds. Special audits may also be conducted without prior notice of the audit visit.
- Audit Period - The period covered by the audit may be up to 6 years, save for fraud cases.
- Audit Process - The audit process should be completed within 90 days. The auditee will be informed in writing if it is expected that the audit process will exceed 90 days.
- Audit Exit Conference - Following the completion of the audit process, a round table discussion (RTD) will be held for Customs to provide information and advice to the auditee to rectify any mistakes or non-compliance with the Goods and Services Tax Act 2014 (GST Act). Any underpaid GST detected or any offences committed under the GST Act will also be communicated to the auditee during the RTD session.
- GST Deficiencies - Where Customs has detected any deficiencies in the GST paid, a bill of demand (BOD) will be issued to the auditee for the underpaid GST, and the deficiency is required to be paid within 14 days from the date of the BOD.
- Appeals - An auditee can appeal against the decision of the audit officer. The appeal application will be made to the Director General of Customs (DG) to review the decision, within 30 days from the date of the decision by the audit officer. If the auditee is aggrieved with the decision of the DG, then the auditee may appeal against the DG's decision to the GST Appeal Tribunal within 30 days from the date of the decision of the DG.
Observations and Recommendation
As a general observation, the procedures and conduct of a GST audit as outlined in Framework are largely similar to the conduct of an income tax audit.
That said, in contrast with the income tax audit framework issued by the Malaysian Inland Revenue Board which contains reduced penalty rates which may be applicable in the event of a voluntary disclosure by the taxpayer, the Framework does not provide any clarification with respect to the penalties which will be imposed for voluntary disclosure, or whether the penalties imposed for first offences and repeat offences will differ. The audit exit conference is also an interesting feature unique to the GST audit process, and may have been introduced to guide companies in the compliance with their GST obligations considering that the GST regime is relatively new.
As Customs ramps up its efforts on GST audits, it would be timely and prudent for businesses to undertake an internal review and health check to determine compliance with the GST requirements and obligations, as penalties could be applicable in the event that instances of non-compliance are discovered during an audit by Customs. Any uncertainty about the implications of GST on particular transactions should also be resolved, so that companies can be assured that it is in compliance with their obligations under the GST regime.