‘Ultimately, tax compliance is not just a legal obligation; it is a civic responsibility fundamental to national development and social equity.’ – Inland Revenue Board, Malaysia
The revelation by Tan Sri Azam Baki, Chief Commissioner of the Malaysian Anti-Corruption Commission (MACC), that a company has been penalised over RM900 million for tax evasion is a stark reminder of a problem that often remains hidden from public view.
Those of us who are wage-earners have little choice in the matter. Our income tax is automatically deducted at source monthly, leaving no room for avoidance and virtually no opportunity for evasion.
Well, this is the best way to ensure that wage-earners do not shirk from their responsibility of paying their dues to the country.
For companies, however, the situation is very different. Corporate tax is assessed after the fact, based on self-declared profits. This creates room, sometimes legal, sometimes not, to reduce tax liabilities mainly through deliberate under-reporting or non-disclosure.
Such a practice can cross into outright tax evasion which only comes to light years later, if at all. The RM900 million penalty case cited by Azam Baki illustrates how long such practices can continue before detection.
The above report, published in Free Malaysia Today on Sunday, has prompted me to ask two key questions. One, how serious is tax evasion in Malaysia? And two, what does tax evasion by profitable companies actually cost the nation?
Tax evasion in Malaysia is not an isolated phenomenon. While enforcement actions like the RM900 million penalty are exceptional in size, they suggest a broader underlying problem rather than a one-off aberration.
According to the Inland Revenue Board (LHDN), tax evasion manifests in various forms, including underreporting income, inflating expenses and failure to register or declare taxable activities.
Such practices occur across sectors, from construction and manufacturing to services and digital commerce.
The seriousness of tax evasion should not be measured solely by the number of high-profile cases exposed. On the contrary, large penalties usually indicate years of undetected wrongdoing.
For every case uncovered, there may be many others that escape detection due largely to limited enforcement resources and lengthy investigative and judicial processes.
The RM900 million penalty likely represents accumulated taxes, penalties and interest over multiple years, implying sustained non-compliance rather than a single lapse.
Now, what does tax evasion cost the nation? At the most basic level, tax evasion deprives the government of revenue needed to fund essential public services.
Corporate taxes contribute significantly to public healthcare, education, infrastructure development, social welfare programmes and national security and administration.
It is common knowledge that when a single company can evade hundreds of millions of ringgit, the cumulative national loss from multiple offenders can easily run into billions annually.
This is worrying for any government and, for the Anwar Ibrahim Administration in particular, as the government is still heavily in debt as a result of the 1MDB scandal.
When tax revenues fall short, the government has limited options but to increase taxes elsewhere and introduce new consumption taxes, among other things.
In practice, this often means that law-abiding individuals and compliant businesses end up shouldering a heavier burden, either through higher indirect taxes, reduced subsidies or diminished public services.
Every ringgit lost to tax evasion is a ringgit not spent on hospitals, schools, roads or public transport. The impact may not always be immediately visible, but over time it results in overcrowded hospitals, underfunded schools and delayed infrastructure projects.
The public ultimately pays the price through lower service quality and reduced quality of life.
Companies that evade taxes gain an unfair advantage over those that comply. This distorts market competition, penalises ethical businesses, and discourages good corporate governance. Over time, it rewards dishonesty while punishing compliance.
Beyond immediate financial losses, widespread tax evasion weakens national governance. It undermines confidence in regulatory institutions and encourages corruption and collusion.
Corruption is a subject that sticks out like a very sore thumb in my book. In this context, I believe that corruption thrives because widespread tax evasion rarely occurs in isolation – it often depends on the complicity of officials who abuse their authority to manipulate records, delay investigations or selectively enforce the law.
When tax evaders can bribe or influence regulators to look the other way, corruption becomes embedded within enforcement agencies, turning them from guardians of public interest into enablers of illegality. This is the vicious cycle of corruption which graft-busters find so difficult to break.
Ironically, while some companies evade taxes to maximise profits, systemic non-compliance can ultimately harm the investment climate by creating uncertainty, reputational risks and governance concerns.
The RM900 million tax evasion case revealed by MACC is not merely an eye-opener – it is a warning signal. Tax evasion in Malaysia is a serious and persistent issue, often hidden beneath layers of corporate sophistication and weak detection.
Its cost to the nation extends far beyond lost revenue, affecting public services, economic fairness, governance credibility and social trust.
Addressing the problem requires not only stronger enforcement and penalties, but also greater transparency, institutional coordination, and a firm message that no company – regardless of size or influence – is above the law.
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DISCLAIMER:
The views expressed here are those of the columnist and do not necessarily represent the views of Sarawak Tribune. He can be reached at sirsiah@gmail.com
