Amendment of Section 112 – Failure to Furnish Return or Give Notice of Chargeability

Section 112 “Failure to Furnish Return or Give Notice of Chargeability” is read as follows:-

Section 112(1) [Penalty for default]

Any person who makes default in furnishing a return in accordance with section 77(1) or 77A(1) in respect of any one year of assessment or in giving a notice in accordance with section 77(3), if he does so without reasonable excuse, be guilty of an offence and shall, on conviction, be liable to a fine of not less than two hundred ringgit and not more than twenty thousand ringgit or to imprisonment for a term not exceeding six months or to both.

Section 112(1A) [Offence and penalty]

Any person who makes default in furnishing a return in accordance with subsection 77(1) or 77A(1) in respect of any year of assessment for two years or more shall, if he does so without reasonable excuse, be guilty of an offence and shall, on conviction, be liable to:-

1. a fine of not less than one thousand ringgit and not more than twenty thousand ringgit or to imprisonment for a term not exceeding six months or to both; and
2. a special penalty equal to treble the amount which the Director General may, according to the best of his judgment, determine as the tax charged on the chargeable income of that person for those years of assessment.

Section 112(2) [Burden of proof on accused]

In any prosecution under subsections (1) and (1A) the burden of proving that a return has been made or a notice given shall be upon the accused person.

Section 112(2A) [Court order]

Where a person has been convicted of an offence under subsection (1), the court may make a further order that the person shall comply with the relevant provision of this Act under which the offence has been committed within thirty days, or such other period as the court deems fit, from the date the order is made. Section 112(3) [Penalty for default where no prosecution] Where in relation to a year of assessment a person makes default in furnishing a return in accordance with section 77(1) or 77A(1) or in giving a notice in accordance with section 77(3) and no prosecution under subsection (1) or (1A) has been instituted in relation to that default:-

1. the Director General may require that person to pay a penalty equal to treble the amount of the tax which, before any set-off, repayment or relief under this Act, is payable for that year; and
2. if that person pays that penalty (or, where the penalty is abated or remitted under section 124(3), so much, if any, of the penalty as has not been abated or remitted), he shall not be liable to be charged on the same facts with an offence under subsection (1).

Section 112(3A) [Penalty for failure to notify under s 21A(3A)]

Where there is a failure by a company, limited liability partnership, trust body or co-operative society to make up its accounts ending on the corresponding day in the following basis year pursuant to subsection 21A(3) and the company, limited liability partnership, trust body or co-operative society fails to give a notification in accordance with subsection 21A(3A), any penalty that had been imposed under subsection (3) based on the accounting period prior to the new accounts as mentioned in subsection 21A(3A) shall continue to be recoverable under this Act. Section 112(4) [Additional amount of penalty pursuant to sub-s (3)]

The Director General may require any person to pay an additional amount of penalty in accordance with subsection (3) in respect of any additional tax which is payable by that person for a year of assessment.

The Finance (No. 2) Bill 2023 introduces an amendment to section 112 of the Income Tax Act 1967 (Act 53). The amendment involves substituting the existing phrase “subsection 77(1) or 77A(1)” with “subsection 77(1) or subsection 77A(1) or (1B)” wherever it appears in the section.

This amendment is designed to address and establish offences and penalties related to the failure to furnish a return in accordance with subsection 77A(1B) of Act 53.

The amendment aims to enhance regulatory measures and ensure compliance with the specified return-furnishing requirements.

Tax Impact: The tax impact of this amendment revolves around the imposition of penalties and potential legal consequences for persons failing to comply with the amended provisions.

The inclusion of subsection 77A(1B) signifies an emphasis on a specific category of return filing, and non-compliance may result in financial penalties, legal proceedings, or both. Under section 77A(1B), every company, limited liability partnership, trust body or cooperative society that disposes of a capital asset shall, within sixty days (or such other period the Director General may allow on a written request being made to him) of the date of disposal of that asset, furnish to the Director General a return in the prescribed form on an electronic medium or by way of electronic transmission in accordance with section 152A.

Affected parties need to be aware of these changes, as the amendment is set to come into operation on 1 January 2024.

This indicates that the revised provisions will be enforceable starting from that date, and entities should adjust their practices accordingly to avoid any adverse tax consequences.