LHDN has identified 5,800 taxpayers who failed to submit tax returns as of July 2025, involving undeclared income amounting to RM484 million. The enforcement action demonstrates how gaps in reporting still create leakages within Malaysia’s tax system.

Economist: Behavioural Non-Compliance a Key Factor

According to Universiti Teknologi Mara (UiTM) Business Management Faculty senior lecturer, Dr Mohamad Idham Md Razak, the findings reflect behavioural non-compliance among a minority of taxpayers. This may include individuals who overlooked their obligations or those who deliberately avoided filing taxes.

“While digitally driven tools such as the e-Invoicing (MyInvois) system are effective in flagging discrepancies, the fact that such a material amount remained unreported until enforcement suggests gaps in voluntary reporting, awareness, or deterrence mechanisms,” he said.

He added that without ongoing monitoring and greater digital integration, Malaysia’s tax system remains vulnerable to underreporting.

Enforcement Yield Versus Total Collections

The RM484 million in undeclared income translated into approximately RM82 million in additional tax revenue. While significant from a compliance standpoint, the amount remains small compared to Malaysia’s total collection.

In 2024, LHDN collected RM184.8 billion in taxes, while the government has projected RM259 billion for 2025. The additional RM82 million therefore represents only about 0.04 per cent of 2024’s total and 0.03 per cent of the 2025 projection.

“RM82 million in extra tax revenue is small in the grand scheme, but meaningful in showing that compliance enforcement works,” Dr Idham said.

Limited Impact on Broader Fiscal Goals

Malaysia is targeting overall revenue increases from RM322 billion to RM339.7 billion in 2025. At the same time, the government is working to reduce its fiscal deficit from 4.3 to 3.8 per cent of GDP, partly through subsidy rationalisation.

Within this context, the economist noted that the scale of recovered revenue from non-compliance is too modest to materially affect subsidy reforms or deficit reduction. However, he emphasised that compliance initiatives still matter in reinforcing trust in the tax system.

Compliance Efforts Strengthen Fiscal Consolidation

Dr Idham stressed that stronger enforcement and digitalisation could have long-term benefits if scaled effectively.

“Beyond the additional revenue, compliance enforcement helps broaden the tax base and ensure that burdens are shared more equitably. This in turn supports fiscal consolidation by strengthening trust in the system,” he said.

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• TAGS:
• 484 Million
• Filing Tax
• LHDN
• Tax
• Tax Compliance
• Taxes
• Undeclared Income