Tax Services

Income Tax
What is a tax audit?

A tax audit is an examination of tax return by the LHDN to examine your tax return a little more closely and verify that your income and deductions are accurate.

There are two types of tax audits: desk audit and field audit.

A desk audit involves simpler issues or tax adjustments that can be dealt with via correspondence at the LHDN office. It generally involves checking all information on income and expenses, as well as various types of claim made by a taxpayer in his income tax returns.

A field audit is more complicated. It typically takes place at a taxpayer’s premise and involves the examination of all the taxpayer’s business records through a tax agent or officer.

In the case of a sole-proprietorship or partnership, if the taxpayer’s business records are incomplete it may involve the examination of non-business records such as personal bank statements and other assets. A taxpayer will be given notice prior to a field audit.

The time required to complete an on-site examination could span between one and three days. However, the audit timeframe may be extended depending on the size of the business and complexity of business transactions.

Both types of audits are aimed at encouraging voluntary compliance with the tax laws and regulations, and to ensure that a higher tax compliance rate is achieved under the Self-Assessment System.