The Inland Revenue Board of Malaysia (IRBM) has taken a bold step toward tax transparency and compliance with the introduction of a new consolidated audit framework, effective 15 March 2025. The new guideline, titled Rangka Kerja Audit Cukai dan Cukai Potongan Majikan (RKA CPM), isn’t just a minor update. It’s a full integration of five previous frameworks, now combined into one unified standard:
- Tax Audit Framework (2022)
- Petroleum Tax Audit Framework (2022)
- Financial Services & Insurance Tax Audit Framework (2022)
- Employer Tax Audit Framework (2021)
- Withholding Tax Audit Framework (2015)
This consolidation simplifies audit expectations for businesses. No more cross-checking fragmented guidelines.
Key Highlights Business Owners Must Understand
1. Broader Scope Than Before
RKA CPM covers more than just income tax. The framework now officially applies to:
- Corporate and personal income tax
- Withholding tax
- Labuan business activity tax
- Capital gains (real property gains tax)
- Employer compliance obligations
Regardless of your company size or industry, if you’re filing tax or employing staff, you’re within IRBM’s scope. Even small businesses and startups aren’t exempt from scrutiny.
2. Two-Tier Audit Process Introduced
IRBM distinguishes between two main types of audits:
- General Review (Desk Audit): Done remotely. Usually triggered by discrepancies in submitted returns. You’ll receive requests via official letters or emails for clarifications, adjustments, or missing documents.
- Comprehensive Review (Field Audit): A full-site inspection. Officers may visit your business premises to examine accounting records, employee files, incentive claims, and tax compliance practices.
In either case, the audit is no longer informal or ambiguous. IRBM follows clear audit procedures under this framework.
3. Defined Look-Back Periods (And When It Can Be Extended)
How far back can IRBM audit your business? Normally up to:
- 3 years for income, Labuan, and withholding tax
- 2 years for employment-related tax matters
But, in cases involving fraud, willful default, or negligence, this extends to:
- 5 years for income, Labuan, and withholding tax
- 12 years for employment-related tax matters
This means if there were past mistakes or oversights, it’s best to clean them up now before they become audit liabilities.
4. Smarter, More Targeted Audit Triggers
Audits aren’t random anymore. IRBM selects cases using:
- Internal system analysis and profiling
- Industry risk benchmarks
- Information from third parties and other agencies
If your filings look inconsistent or out-of-pattern, it might be flagged automatically, even if your business is small.
5. Clear Process and Fair Timelines
Here’s what to expect during an audit:
- A 14-day written notice before any site visit
- Clear instructions on what years and documents will be reviewed
- Opportunity to respond within 18 calendar days to audit findings
- Resolution expected within 90 to 450 days, depending on complexity
This ensures that businesses have enough time to prepare and respond.
6. Penalties Have Been Formalized and Tiered
Know your risk exposure:
- 15% penalty for first-time non-compliance
- 30% for a second offense
- 45% for third or repeated offenses
- 100% penalty in cases of willful fraud or falsification
- 0% penalty for cases of genuine misunderstanding (e.g. technical interpretation differences)
This structure encourages voluntary disclosures and discourages repeated mistakes.
7. Voluntary Disclosure Still Available
Fix issues before they become audit problems. Businesses can make voluntary disclosures before an audit starts:
- 10% penalty if disclosed within 6 months after filing
- 15% for disclosures made after 6 months
This is an opportunity to correct any underreported income or filing mistakes with significantly reduced penalties.
8. Payment & Appeal Procedures
Once an audit concludes:
- Tax and penalties must be paid within 30 days of assessment
- Installment payment plans may be requested (subject to IRBM approval)
- If you disagree with the outcome, you have the right to appeal to the Special Commissioners of Income Tax, also within 30 days
Final Thoughts
This isn’t just a compliance tightening. It’s a structural upgrade in Malaysia’s tax landscape. The IRBM is moving toward greater accountability, and RKA CPM is its roadmap. If you run a business in Malaysia, now’s the time to understand your tax responsibilities and take action before you’re flagged. Transparency isn’t just for the authorities. It’s your best defense too.
Stay Ahead of the Curve
Ensure your business is fully prepared for the new tax audit framework. Reach out to a professional tax advisory firm, like Battchoo & Yong PLT, or your trusted advisor, to assess your compliance, identify potential risks, and take proactive steps to avoid penalties.
Email: info@battchoo.com
Phone: +603-78809918
Website: https://www.battchoo.com/