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Tax Investigation must be clearly separate from Tax Audit. Tax Investigation is an inspection of the tax payers business or individual books, records or document in order to ensure the tax payer had reported the correct amount of income and tax that need to pay in accordance with tax laws and provisions. Tax investigation will be carried on by surprise which also known as back duty case. It was conducted on behalf of owner and outsiders like investors. When there is suspected based on detailed and clear evidence that show that the taxpayer has the intention to avoid paying the tax which also known as tax evasion.
The tax investigator will arrive at the tax payers premises and take the custody of the required documents, books and records for investigation purposes. Besides that, additional notice may be served if required.
It also will request the taxpayers, creditors and the bankers of the taxpayer to obtain some additional information in the purpose to invent the best judgment of the tax affairs of the taxpayer.
If there is necessary, tax investigator will require an interview with the taxpayer for further information. The tax investigation can be classified in two categories which is civil tax investigation and criminal tax investigation. Civil tax investigation involves the activity of detection of tax evasion. This will lead to the tax payers have the responsibility to recover the tax loss and coupled with heavy penalties. Criminal tax investigations focus on gathering some acceptable evidence that prosecute and belief that the tax evader is offences to the law.
The purpose of Tax investigation is varies from business to business. It ensures the correct amounts of tax are collected and determine the person responsible for the offence and follow the criminal prosecution.
Tax audit is an inspection of a taxpayers business records and financial affairs to ensure that the amount of tax that reported and paid are according with tax laws and regulations. Unlike tax investigation, tax audit are not conducted surprisingly, it is conducted on behalf of the owners only and the appointment will made by them. The taxpayers are advice of the date and estimate of the duration of the audit. The scope of audit will also be defined in order to let the taxpayer prepare the document which required. Tax audit can be classified into 2 categories which are desk audit and field audit. Desk audit is conventional way of tax audit which involves in reviewing of the information or document on income and expenses as well as several types of claims made by a taxpayer in his income tax return. The taxpayer will obtained the information through correspondences or interview if it is require at the IRBs offices. Field audit is the most common way of tax audit under self assessment system. Field audit take places in the taxpayers premises for a detailed review of all relevant documents.
The selection of taxpayers for a field audit is based on some criteria such as business performance of the company, inconsistency of reporting income, spending habits or past compliance records and etc. Once the taxpayer is selected for field audit, the taxpayer is usually given between 2 to 4 weeks notice to prepare some documents ready for audit. Otherwise, the taxpayer can extend the notice through written request. The purpose of tax audit is to determine a true and fair view of the business records. The audit officer is responsible to ensure that the reported amount is correct and the amount of tax that paid is correct accordance with tax laws and regulations. The other purpose of tax audit is to achieve the voluntary compliance with the tax laws and regulations and to ensure that a higher tax compliance rate is achieved under the Self Assessment System. IRBM has taken the action to educate and create awareness of taxpayers about their rights and responsibilities under the provision of International Tax Audit.
Other than the differences above, there are some other differences among tax investigation and tax audit. Tax investigation is relates to critical checking of particular records while tax audit is relates to checking all books, documents and records. Investigation work will be completed in the way through cent percent checking which means it must be fully checking until it meets the result of approximately 100% and avoid any unnecessary error. On the other hand, audit work may complete the work by test checking such as some audit procedures is required in objectivity, inspection, computation of the document or records. There was no time limit for tax investigation, sometimes they may relate to many years but tax audit of the account is made particular time period such as once a year or few months once.
Another difference between tax investigation and tax audit is that the investigator normally may or may not be charted accountant because they just need to check on the specific records or documents while auditor usually was charted accountant so that they were only has the ability to check all the documents or records. Investigator work is difference with audit work because investigator normally is voluntary but it also will be compulsory in certain case while auditor work is usually compulsory under the law for companies and other concern. Due to investigation work, it needs to investigate the tax evasion from the tax payer through examine their documents or records, so that it may need to examine the employee personally to find out the causes and solve the problem.
Auditor is indifference with investigator, they does not examine the employee personally because it just needs to audit the documents or accounts continuously for a period of time. Thus, tax investigation will usually conduct after the audit accounts and the tax audit is usually conducted before the investigation of accounts. There is no legal requirement for tax investigator to require them to disclose the information while investigation but the law stated that the auditor may need full disclosure of the information for the board of director or shareholder of the company.
Choong K. F. (2008). Malaysian Taxation: Principle and practice (14th ed.). Malaysia: InfoWorld.
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