Wilful Tax Evasion In Malaysia Costs You 300% Of The Tax, Plus Up To RM20,000 And 3 Years

Most Malaysians think of tax problems as a late filing penalty. The Income Tax Act 1967 has a criminal side, and the numbers on it are not small.

Section 114(1) — wilful evasion — carries a fine of RM1,000 to RM20,000, or imprisonment up to 3 years, or both, and 300% of the tax undercharged.

On RM100,000 of undercharged tax, that is RM300,000 in special penalty on top of the tax itself, plus the fine, plus the possibility of prison.

And there is a layer above that most people have never heard of. Failure to furnish a return (s.112), incorrect returns (s.113) and wilful evasion (s.114) are listed as serious offences under the Second Schedule of the AMLATFPUAA — Malaysia's anti-money laundering legislation. Conviction for a money laundering offence under s.4 AMLATFPUAA carries imprisonment up to 15 years and a fine of not less than five times the value of the proceeds, or RM5 million, whichever is higher.

This page is the offences-and-penalties reference. For deadlines, side income, reliefs and the ordinary filing mistakes, see the companion article (The tax mistakes that cost Malaysians the most — and what LHDN actually does about them).

1. The offence table — LHDN's own figures

This is taken directly from LHDN's published Offences, Fines and Penalties table. Where you see different figures elsewhere, prefer these.

Note that last row. Not telling LHDN you moved house is an offence carrying the same maximum as failing to file.

A common point of confusion resolved. Secondary sources variously report the s.114(1) fine range as RM1,000–RM10,000 or RM1,000–RM20,000. LHDN's own table says RM1,000 to RM20,000. We have used that.

2. Civil penalty vs prosecution — the distinction that matters most

Most taxpayers never see a courtroom, and that is by design.

Commentary on Malaysian tax enforcement notes that failure to furnish returns and submission of incorrect returns are offences where the Director General commonly imposes a civil penalty in lieu of prosecution under ss.112 and 113.

The mechanism: where no prosecution has been instituted in respect of failure to furnish a return or give notice of chargeability, the DG may under s.112(3) require the taxpayer to pay a penalty of three times the amount of tax undercharged.

So there are two tracks:

Section 124 gives LHDN power to compound offences and abate or remit penalties, which is where negotiated outcomes happen.

Section 122 is worth knowing: tax remains payable notwithstanding the institution of proceedings. Being prosecuted does not suspend the underlying liability.

3. The late payment increases — separate from the offences

These are not penalties for an offence. They are automatic increases on unpaid tax, and they compound.

• s.103(3) — a 10% increase on the unpaid tax balance
• If the balance plus that 10% remains unpaid after 60 days, a further 5% on the outstanding amount

A worked illustration. On an unpaid RM50,000 liability: the 10% adds RM5,000 immediately after the payment deadline. At day 60, the 5% is charged on the outstanding balance of RM55,000, adding RM2,750.

Both sit on top of the tax already owed. And a s.112 fine, if imposed, is separate again.

For companies, there are estimate-related penalties too:

• s.107B(4) and s.107C(10) — where actual tax payable exceeds the original or revised estimate by more than 30%, a 10% penalty on the difference
• s.107C(9) — a 10% penalty on any instalment due and unpaid by the due date

4. What happens in an LHDN audit or investigation

Audit and investigation are different things. Audit is a compliance review. Investigation is directed at suspected evasion and can lead to prosecution.

Powers you should expect:

• Investigators can request business records going back up to 7 years
• Where AMLATFPUAA powers are engaged, LHDN officers may enter premises without a search warrant
• Investigation under AMLATFPUAA and under the ITA may be conducted separately or concurrently

If you are audited:

• Respond within the deadlines. Failure to comply with a notice requiring information is itself an offence under s.120(1).
• Do not obstruct. Section 116 carries RM1,000–RM10,000 and up to a year.
• Get your tax agent involved immediately, and consider a lawyer if the questioning suggests investigation rather than audit.
• Do not guess in writing. An incorrect answer can move you from s.112 territory into s.113.
• Keep everything. Section 119A makes failure to keep proper records an offence in itself.

On voluntary disclosure. Coming forward before LHDN finds a problem generally produces a materially better outcome than being found. We could not verify the terms of any voluntary disclosure programme currently open, and these have run as time-limited programmes with specific reduced-penalty rates. Ask a licensed tax agent what is available now — the difference between a disclosed and a detected understatement is usually the difference between a manageable penalty and a serious one.

5. Directors and tax agents

Directors. Company tax liability can reach directors personally. The relevant provision is commonly cited as s.75A of the Income Tax Act 1967. Related provisions ss.74 and 75 deal with distribution of assets by an executor or liquidator without making provision for tax that they know or might reasonably expect to be payable.

We have not been able to reproduce the full current text of s.75A and are not going to state its conditions or thresholds from memory. If you are a director of a company with unpaid tax, get advice specifically on your personal exposure — this is a live risk area and the details matter.

Tax agents. LHDN's published position:

• Carrying on activities as a tax agent, consultant or adviser without approval under s.153(1) is an offence under s.120(1)(d), carrying RM200 to RM20,000 or imprisonment up to 6 months or both
• Assisting or giving advice in preparing a return that results in under-declared tax liability is an offence under s.114(1A), carrying RM2,000 to RM20,000 or up to 3 years or both

Note the practical effect of s.114(1A): "my accountant did it" is not a defence for you, and it creates separate exposure for the accountant.

6. e-Invoice and newer offences

The Act has grown. The current offence list includes provisions that did not exist a decade ago:

• s.112A — failure to furnish a country-by-country report
• s.113A — incorrect returns, information returns or reports
• s.113B — failure to furnish contemporaneous transfer pricing documentation
• s.119B — failure to comply with rules on mutual administrative assistance

On e-Invoice. Non-compliance is enforced, and the exemption threshold rose from RM500,000 to RM1 million effective 1 January 2026 — see (The Fine For Selling Online Without The Right Disclosures Is Now RM100,000, Not RM50,000). We could not verify which specific ITA provision LHDN uses for e-Invoice failures and have not asserted one; commentary points generally to s.120. Check current LHDN guidance.

What to actually do

If you have not filed:

• File. The s.112(1) fine ranges from RM200 to RM20,000, and the civil route under s.112(3) is three times the tax undercharged. Neither improves with time.
• There is no automatic waiver for a first-time late filing, but LHDN reviews appeals on their facts and may reduce or waive where there is a reasonable excuse backed by evidence — hospitalisation or a verified disaster are the examples given.

If you have understated income:

• Take advice before doing anything else. The gap between s.113 (200%, civil penalty common) and s.114 (300%, prosecution, prison) is the presence of wilfulness, and how you handle the disclosure affects which one you are in.
• Ask your tax agent about voluntary disclosure options currently available.

If LHDN contacts you:

• Establish whether it is an audit or an investigation. Ask.
• Comply with notices and deadlines — s.120(1) and s.116 create offences for not doing so.
• Do not obstruct, and do not destroy anything. Record-keeping failures are an offence under s.119A and destroying records during an investigation is far worse.
• Engage a licensed tax agent, and a lawyer if prosecution is a realistic prospect.

If you are a director: - Do not assume company tax stays with the company. Take advice on s.75A exposure.

Where to check: LHDN's Offences, Fines and Penalties page at hasil.gov.my, the Income Tax Act 1967 (Act 53) at hasil.gov.my/media, and a licensed tax agent — we are not one.