The Inland Revenue Board (LHDN) conducts tax audits to ensure that individuals and businesses comply with the Income Tax Act 1967. A tax audit examines a taxpayer’s records and financial documents to verify that tax returns are accurate and that the correct amount of tax has been paid.
There are two main types of LHDN tax audits:
- Desk Audit: A basic review conducted at the LHDN office, usually involving a specific item in the tax return.
- Field Audit: A more in-depth examination carried out at the taxpayer’s premises. This involves reviewing source documents, accounting records, and operational procedures.
Common triggers for a tax audit include inconsistent financial data, unexplained losses or deductions, discrepancies with third-party data, and random selection.
How to respond to a tax audit:
- Be cooperative: Provide requested documents promptly.
- Stay organized: Keep complete, accurate, and retrievable financial records.
- Engage professionals: Work with a tax consultant or auditor to ensure compliance and representation.
- Rectify issues: If errors are found, voluntarily disclose and settle any outstanding taxes to avoid heavier penalties.
At Jamal, Amin & Partners, we support clients during tax audits by reviewing records, liaising with LHDN, and providing professional advice. Proper preparation and representation can significantly reduce the risk of penalties and ensure smoother audit outcomes.