The proposal to introduce Section 106A, of the Income Tax Act, 1967 was passed through the Finance Bill 2021 in the Dewan Rakyat on Dec 15.
This new section grants the power to the Inland Revenue Board (IRB) director-general to call for bank account information for the purpose of making a garnishee order application.
Following the passing of the bill, there have been various headlines, discussions, and speculations surrounding this topic. Many have wrongly interpreted the true intentions for the introduction of this new section.
A simple interpretation is that now, the IRB can ask for one’s bank account information, and use that information to impose income tax, and collect additional tax. It is intended to promote tax compliance and provide the ability to recover tax debts due to the government.
It is important for taxpayers to understand this new power granted to the IRB, under Section 106A.
The power to call for bank account information must be for the purpose of making a garnishee order application. One must be clear of the definition of garnishee proceedings.
Garnishee proceedings is a process of enforcing a money judgment by the seizure or attachment of debts due or accruing to the judgment debtor that forms part of his property available in execution.
This would mean civil proceedings must have been instituted against a person, and a judgment obtained against that person, for the IRB to be able to obtain the bank account information of that person from the financial institutions.
The purpose of obtaining such information is for the IRB to make the application to the court for a garnishee order (to recover tax due and payable by the person to the government).
The IRB director-general must have a notice, under his hand, to request for such information. The new Section 106A does not permit, or extend the power to the director-general or IRB, to obtain such information for other purposes.
In addition to the above, subsection (2) of the proposed Section 106A prohibits the financial institution from disclosing to any person that such a request was made to the financial institution. However, this does not mean that the IRB has a free hand to ask for a taxpayer’s bank account information from financial institutions in “secret” or “private”, without the taxpayer’s knowledge.
A taxpayer’s personal and bank account information are still protected by the respective banking secrecy laws, such as the Personal Data Protection Act 2010.
Several other observations can be made from this Section 106A. “Financial Institutions” here only covers banks (including Islamic banks and development financial institutions).
This shows that the new power granted does not extend to investment accounts with asset managers, fund managers, and life insurers.
Another important point is the term “bank account information” itself. It is unclear which bank account falls under the purview of this new section. Would it be confined to savings and current accounts? Would the IRB consider the financing accounts/loan accounts that the taxpayer needs to serve? Would the IRB consider the commitment attached to the bank account – capital commitment for a loan, standing order to pay bills or staff salaries – among others?
From another point of view, the banks themselves would need to set up robust processes to address the request for bank account information by the IRB under the new Section 106A and protect the confidentiality of such requests. Failure to do so would expose the banks to a fine of RM200 to RM20,000, or imprisonment of its representatives for a term of six months, or both, under Section 120A of the Income Tax Act, 1967.
The public at large should not be worried by the introduction of Section 106A. The new power granted to IRB may not be widely applicable, especially to those who have been complying with their income tax obligations.
Fariz Faruk is the tax audit and investigation executive director of Deloitte Malaysia.
This is the personal opinion of the writer and does not necessarily represent the views of Twentytwo13.
