TRAVEL bans are being used by the tax authorities to pressure taxpayers to settle outstanding liabilities, whether or not those liabilities are correct in law.
Tax authorities have the power to issue assessments: Malaysia’s Inland Revenue Board (IRB) issues tax assessment, while the Royal Malaysian Customs Department (RMCD) issues bills of demand.
This is disturbing for genuine taxpayers who may have an issue with the IRB or the RMCD which they disagree with. The matter may be under appeal and there may be good grounds to ventilate the dispute through the legal system. However, the current system allows the IRB to collect the taxes even though the matter is under appeal. The approach we follow is, in effect, “pay first, talk later”.
Reasons for outstanding taxes
The common reasons for outstanding taxes are that taxpayers may not have the necessary cash flow, or that the assessments are unreasonably large and the taxpayer does not have the capacity to pay such large amounts.
Taxpayers who are in business should be allowed to carry on their business, and this may include travelling in and out of the country. If key people are prevented from travelling as a result of the imposition of a travel ban, it may affect the performance of the business and consequently worsen the financial situation of the taxpayer or the company. Imposing a travel ban may therefore worsen the situation instead of improving the chances of the authorities collecting the taxes.
The latest development
In a recent decision on a Goods and Services Tax (GST) matter pronounced by the Shah Alam High Court in a judicial review, the court revoked the travel ban imposed on the taxpayer on, among other grounds, the basis that RMCD had not provided sufficient evidence to satisfy the court that it had sufficient “reasons to believe that the person is about or likely to leave Malaysia without paying the taxes”.
If a taxpayer has been travelling in and out of Malaysia and has not shown any intention to abscond, this case suggests that the tax authorities cannot simply impose travel bans on all taxpayers who owe taxes to the authorities.
There is a similar provision in the Income Tax Act 1967 under Section 104. A slight difference in the wording is that here, the Director General must be of the “opinion” that the person is about or likely to leave Malaysia without paying the taxes. Both phrases are somewhat similar.
It appears that the RMCD and the IRB have a responsibility to provide evidence that the person is likely to abscond and not return to Malaysia. Taxpayers now have the right to challenge the authorities when travel bans are imposed.
The way forward
The best advice would be to check whether a travel ban is in place before you travel. It would be in the interest of all parties if the taxpayer approaches the IRB or the RMCD to remove the ban and provides good reasons and assurance to the tax authorities that he or she will return to Malaysia.
This can be done by showing that you have an ongoing business, that your family is living here, or that you are travelling for a legitimate purpose, whether for health or business reasons.
It is hoped that the tax authorities will favourably consider removing the travel ban. Both authorities should not be rigid on this matter and should allow flexibility.
If the tax authorities are still insistent, the matter should be taken to court and approval should be sought from the courts. The authorities should balance the need to collect taxes with the taxpayer’s right to continue their business and pursue their legal remedies.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).
