Deloitte Malaysia has stepped forward to reassure Malaysians that they need not be too worried about a recent amendment made to the Income Tax Act 1967, which grants the Inland Revenue Board (LHDN) direct access to taxpayers’ bank accounts. This is because the right will only be exercised if a garnishee order application is made in court.

For context, the government had recently passed the Finance Bill 2021, which introduced amendments to several Acts – one of which is the inclusion of a new Section 106A in the Income Tax Act 1967. Under this new section, LHDN will no longer be required to inform or obtain consent from taxpayers while requesting their bank account details for reviews or investigations.

According to the tax audit and investigation executive director of Deloitte Malaysia, Mohd Fariz Mohd Faruk, it is crucial for the public to first understand the specific conditions of the new Section 106A. “The power to call for bank account information must be for the purpose of making garnishee order application. One must be clear of the definition of garnishee proceedings,” he said in a statement.

Essentially, a garnishee proceeding is a court-approved process where creditors are allowed to recover money owed to them by requesting for a third party (who is indebted to the debtor) to hand over any of the debtor’s assets that are currently in the third party’s possession.

“This would mean that a civil proceeding must have been instituted against a person and a judgment has been obtained against that person for LHDN to be able to obtain the bank account information of that person from the financial institutions. The purpose of obtaining such bank account information is for LHDN to make the application to the court for a garnishee order (i.e. to recover tax due and payable by the person to the government),” Mohd Fariz explained.

Mohd Fariz also stressed that the director-general of LHDN (DGIR) must have a notice if he wishes to request for any taxpayers’ bank account details. “The new Section 106A does not permit or extend the power to the DGIR to obtain such information for other purposes,” he said.

Additionally, Mohd Fariz addressed the matter of Subsection (2) in Section 106A, which prohibits banks from disclosing to taxpayers when such requests have been made. “This does not mean that LHDN has a free hand to ask for bank account information of a taxpayer from financial institutions in ‘secret’ or ‘private’ without the taxpayer’s knowledge,” he stated, adding that the personal and bank account information of taxpayers will still be protected by respective banking secrecy laws, such as the Personal Data Protection Act 2010 (PDPA).

Given these conditions, Mohd Fariz said that the public can have confidence in an ethical implementation of Section 106A, as it is ultimately intended to promote tax compliance and to provide the ability to recover tax debts due to the government. “The new power granted to LHDN can be seen as far-fetched but in reality, it may not be widely applicable or implemented to people on the street who have been complying with their income tax obligations,” he said.

(Sources: The Edge Markets, Malay Mail)

• TAGS:
• Deloitte Malaysia
• Finance Bill 2021
• Income Tax
• Income Tax Act 1967
• Income Tax Act 1967 (Section 106A)
• Inland Revenue Board
• Lembaga Hasil Dalam Negeri
• LHDN
• Mohd Fariz Mohd Faruk
• Personal Data Protection Act (PDPA)
• Taxes