Why do the rich have a tough time with capital statements

IT is becoming common for the Inland Revenue Board (IRB) to ask high net worth individuals to account for the movement of their wealth on a year-on-year basis for a period up to five years or perhaps longer. The purpose is to identify any non-disclosure of taxable income or capital gains relating to the disposal of real properties.

There is a common belief among high net worth individuals that they are paying too much taxes and therefore there is a tendency not to disclose full information or shield the income from the IRB using nominees. They also believe the chances of them being picked up by the tax authorities may be remote since the IRB has limited resources. In many cases, the core problem lies with the individuals themselves because they don’t pay attention to their tax affairs and leave it either unattended or delegated to assistants who do not have a full picture of the individual’s total financial affairs. The assistants are only interested in discharging the compliance responsibility through the filing of the annual tax returns.

In the current digital environment, IRB can easily identify recalcitrant taxpayers using artificial intelligence to mine information from their own database and information from other agencies such as Bank Negara Malaysia, Companies Commission of Malaysia and Malaysian Anti-Corruption Commission. It is advisable for such individuals to keep close track of the movements of their net worth and account for the taxes correctly rather than taking the chance that they may get away with it.

This does not prevent high net worth individuals from planning their affairs such that certain transactions do not fall within the ambit of the Malaysian tax legislation. Tax planning is a personal freedom that cannot be taken away from individuals as long as it is legitimately carried out.