[TAX UPDATE] Tax Audit and Appeal in Malaysia

[TAX UPDATE] Tax Audit and Appeal in Malaysia

Dear Clients,

When you hear the word “tax audit,” it often brings a sense of worry. But the truth is, a tax audit is simply LHDN (IRB Malaysia) doing their job of checking whether your company’s taxes are correct. If you know the process, you can prepare better and respond with confidence.

Here’s a clear breakdown of the key stages of a tax audit and appeal in Malaysia, from the first letter to the final level of appeal.

Stage 1: Notification

The process begins when LHDN issues a Tax Audit Notification Letter.

  • You must respond within 14 days of receiving it.

  • Ignoring the deadline may raise unnecessary red flags.

Stage 2: Preparation & Submission of Documents

You can either deal directly with LHDN or appoint a tax agent like KTP to represent you.

  • If you appoint us, we will prepare a formal letter of engagement, outline the scope, and agree on fees.

  • Be prepared to share all relevant financial records. In fact, it is now common for soft copies of accounting software data to be emailed directly to LHDN.

Stage 3: Desk Audit Assessment

Once documents are submitted, an LHDN officer will review them.

  • Expect requests for clarification or further details.

  • The process may take time, depending on the complexity of the case.

Stage 4: Audit Findings Issued

After the assessment, LHDN will issue a letter of audit findings.

  • This letter will outline issues identified and the tax adjustments they propose.

Stage 5: Tax Appeal

If you disagree with the findings, you can file an appeal.

  • This is where you must explain and provide evidence to support your position.

  • Proper documentation is critical here.

Stage 6: Tax Appeal Results

Following your submission, LHDN will issue a summary of results.

  • You will need to indicate whether you agree or disagree with the findings.

Stage 7: Issuance of Form JA or JR

Depending on the outcome, LHDN will issue:

  • Form J or JA – Notice of Assessment / Additional Assessment, or

  • Form JR – a related document used in appeal matters.

This sets the stage for formal appeal channels if you continue to disagree.

Stage 8: Filing Appeal (Form Q & N)

  • Form Q: File within 30 days of receiving Form J/JA, stating your grounds of appeal.

  • Missed deadline? Apply for extension with Form N. If DGIR rejects, SCIT may decide on late filing.

Stage 9: Review by DGIR

  • DGIR has 12 months to review your appeal.

  • May request more info or meetings.

  • Many cases are resolved here through the Dispute Resolution Department (DRD), avoiding tribunal.

Stage 10: SCIT Hearing

  • If unresolved, case goes to Special Commissioners of Income Tax (SCIT).

  • Formal hearing before a 3-person panel.

  • Taxpayers may appoint a tax agent or lawyer.

  • SCIT decides whether to confirm, reduce, increase, or amend the tax.

Stage 11: Further Appeal

  • If unhappy with SCIT’s decision, appeal to the High Court (law only, not facts).

  • Further appeal may go to the Court of Appeal, again only on legal grounds.

What SME Owners Should Take Away

  • Deadlines matter : Missing a filing window, even by a day, can jeopardise your case.

  • Documentation is key : Keep proper records of invoices, receipts, contracts, and correspondence.

  • Settle early if possible : Many disputes are resolved during DGIR’s review or DRD negotiation stage.

  • Professional help makes a difference : Having a tax agent or lawyer ensures your case is presented properly, especially at SCIT.

Final Thoughts

A tax audit is not the end of the world. It is part of the compliance landscape for all businesses in Malaysia. What matters is how you prepare, respond, and appeal. With timely action and the right support, you can protect your position and minimise disruption to your business.

If you need guidance on managing a tax audit or appeal, our team at KTP is here to help.

Warm regards,
KTP Tax Team

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