What Happens When You Don't Pay Your Income Tax?

If you haven’t been paying your taxes, here’s what could happen if you continue to ignore it. HINT – it’s not pretty!

Even though you might not like the hassle of filing and paying your taxes, it’s definitely a hang-up you’ll need to get over soon because when the taxman comes knocking, you’re likely to be in a lot of hot water.

Here’s what you need to know about missing tax payments:

Do You Need To Pay Taxes?

If your income level falls within the taxable level (generally RM34,001 per year after EPF), then yes, you will need to at least file your taxes. The good news is that depending on your allowable deductions or rebates, you might in fact pay very little or none at all. But it still remains that you file a tax return in any case.

If you are unsure about whether or not you need to file taxes, which is sometimes the case for individuals with special circumstances, for instance, freelance workers, small e-Commerce businesses or the self-employed, do pay the Internal Revenue Board of Malaysia (IRBM) a visit. A tax officer can answer your queries and clear confusions about your tax file. If you are unable to make the trip, do write in with the specifics of your case and ask for advice.

Why File Taxes?

Apart from the penalties you will face, which we will cover below, filing and paying your taxes is good from a financing viability standpoint. Banks have a clearer indication of your legal income through your tax returns. For those who are self-employed or working freelance, filing your taxes can show your profitability and income level, which might improve your position when applying for loans.

What Can Realistically Happen If You Fail to File and Pay Your Taxes?

Tax evaders may face jail time as it is against the law to dodge your responsibility. According to the Income Tax Act of 1967, “Failure (without reasonable excuse) to furnish an Income Tax Return Form” can result in fines of RM200 to RM2,000, imprisonment or both. Notice though, that if you have a reasonable excuse, you may be spared.

On the other hand, “Willfully and with intent to evade or assist any other person to evade tax” carries a much more severe penalty with fines of RM1,000 to RM20,000, imprisonment or both, plus 300% of the amount undercharged. Tax evasion in this context refers to non-payments and underpayment of taxes owed.

In addition, an “attempt to leave the country without payment of tax” will also result in fines of RM200 to RM2,000, imprisonment or both.

As you can see, not filing and paying taxes can carry rather unfavourable outcomes, thus it is in your best interest to file on time and accurately at that – understating income or giving incorrect information can also carry penalties!

Making Late Payments

Paying taxes after the specified date, typically on the 30th of April for individuals and the 30th of June for businesses can result in penalties. Here you may be subject to a 10% increment of the tax payable and if you fail to make payment within 60 days, expect an additional 5% increment of that balance. Note that there is no jail time for late payments, so do pay your taxes even if it is a little tardy as the penalties are less severe than if you were to not pay at all.

Can You Appeal for A Lesser Sentence?

If you have a reasonable excuse for your lateness, non-filing or non-payment, you can try to make an appeal in writing within 30 days from the date of the notice you’ve received. Proceed to make payment first as your appeal gets sorted, you may receive a refund later on if successful. Unfortunately though, ignorance is not a proper defence and whether or not your appeal is granted depends on the IRBM’s assessment.

Did you know that you may claim tax relief for life insurance premiums paid? So if you don’t already have a life policy in place, you might want to consider getting one to maximise your reliefs and enjoy coverage. Visit our comparison page for help choosing a plan that is right for you.

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  • Kin

    Hi, thanks for posting this article. However, I have doubt and need some clarification.

    My income level is below taxable level. Due to this, for sure I do not file my taxes. But recently I was told that whether the income is below or above the taxable level, I still need to file my taxes. If i failed to do so, it will affect my withdrawal of EPF (account #1) (after reaching my retirement age).

    I was told that the EPF will deduct certain amount (from account #1) and pay the taxes that I haven't filedbefore. Let's say my income is still below taxable level until my retirement day.

    Is that true?

    Reply
    • RinggitPlus

      Hi Kin,

      You should still file your taxes even you don't earn enough to pay tax on your income yet, since it's the law.
      However, if you do not earn enough to pay taxes, the govt cannot "take out money from your EPF" since you don't owe them tax in the first place.
      For further clarification on this matter, we recommend you contact your nearest LHDN branch.
      Hope this helps!

      Reply
    • BK

      Hi, my husband lodged his taxes April 27th online but received a notification saying please visit office for further review. He assumed it was lodged and they just needed documents for verification only and made it to the office by May 18th only (due to other work commitments) on which date it turned out they had to lodge again and he had to pay what he owed of RM 500. He has now been slammed with a penalty of RM 18k saying he was late! Best part the letters arrived during Hari Raya holidays while we were away etc and we only saw it after the appeal period lapsed. On visiting the Tax office to explain we've been told we must pay the full amount of penalty first and then we can still appeal. It's such a huge amount of penalty for someone who did not intend any tax fraud and has always been lodging and paying on time! My question, if we pay now given that the 'technical' appeal period is over, any chances of a reimbursement? Is there any other way to go about this?

      Reply
      • RinggitPlus

        Hi BK,

        You can still try an appeal with them, but it doesn't look likely that you'll get reimbursed. It's good to try for it anyway.
        Alternatively, you can ask for advice from a reputable tax agency and see if they can better help you with this matter.
        Hope this helps!

        Reply