Worried you will ‘kena’ Tax Audit? Here are the 7 common triggers 🚩🚩🚩

Published: 21 Apr 2025

Hi folks! It’s tax filing season! And that means;

Businessperson and individuals alike, please make sure your tax filings are complete and completed properly!

Tax audits can be stressful and scary—but knowing what triggers them and how to prepare can make all the difference.

While some audits are random, most are triggered by specific red flags in your tax filings or financial records.

So, what are the specific red flags? 🚩

RED ALERT! RED ALERT! 🚨 Here Are Some Common IRBM Tax Audit Triggers in Malaysia:

1. Large or Sudden Changes in Income or Expenses

A significant drop in profit or a spike in expenses without proper explanation can raise eyebrows.

If your profit suddenly drops by 50%, or your expenses double in a year, IRBM will want to know why.

These shifts may be valid—perhaps due to expansion, new equipment, or market challenges—but without a clear explanation or documentation, they will raise red flags.

2. Consistently Reporting Losses

No one in their right mind will want to run a business to lose money.

However, if your company declares losses year after year, IRBM may question the sustainability of your business model or a vehicle to avoid tax. This is especially true if your business still pays salaries or director fees despite no profit.

3. High Director’s Fees or Low Salaries

Excessive director’s remuneration, low employee wages, or unusual compensation structures may trigger scrutiny.

Overpaying directors or underpaying staff may suggest attempts to reduce taxable profits or avoid statutory contributions (like EPF, SOCSO). It may also trigger investigation into personal income tax of the directors.

4. Unusual Tax Refund Claims

Claiming large tax refunds—especially if inconsistent with past filings—can prompt an audit.

Claiming large tax refunds, especially without supporting documentation (like overpaid CP204 instalments or unutilised capital allowances), can trigger a review.

IRBM may suspect fraud or overstatement of expenses.

5. Mismatch Between Sales & SST Filings or E-Invoices

As the government moves towards integrated tax data (especially with e-invoicing and SST), discrepancies between what you declare in income tax vs. SST returns or e-invoices will stand out.

If you report high SST sales but low-income tax revenue—or vice versa—the IRBM may open an audit.

6. Related Party Transactions

Businesses with cross-border or local related party dealings may face transfer pricing audits—especially if documentation is lacking.

If you do business with related companies (e.g., subsidiaries, parent companies, or companies owned by family members), the IRBM may suspect income shifting to reduce taxes.

If you don’t have proper transfer pricing documentation, you risk heavy penalties.

7. Late or Incomplete Submissions

Filing your tax returns late, omitting attachments (like audited accounts or Form C particulars), or submitting inconsistent numbers year-to-year can increase your audit risk.

IRBM systems are designed to flag such non-compliance automatically.

That’s why we constantly emphasize on the importance of adhering to the submission dates of submission deadlines!

🛡️ Shield yourself ladies and gentlemen! Here’s How to Be Prepared!

✅ Maintain Clean & Accurate Records

Ensure your accounting records, invoices, receipts, and supporting documents are well-organised and accessible.

Maintain clear documentation of all business transactions, including invoices, receipts, payroll records, and agreements.

Use a proper accounting system—not manual spreadsheets.

Keep everything clear and automated. If you don’t have one, hey, we’re here to help!

✅ Justify Any Significant Changes

If there is a legitimate reason for profit dips, high expenses, or loss declarations—document and explain them clearly in your tax file.

If your expenses spiked due to machine purchases or your revenue dropped due to a cancelled contract, keep the receipts, contracts, or e-mails as proof.

During an audit, IRBM will ask for this.

For those of you who have trouble with housekeeping, especially if you have your proof of purchase or receipts strewn all over the place, now is the time to ensure everything is tidied up!

We don’t want you to be scrambling around looking for your documents when it comes to deadline day.

✨✨Remember to keep your records for at least 7 years — just in case the IRBM conducts a tax audit on previous years. This way, you'll have all the necessary proof to justify any changes in the numbers.

✅ Reconcile All Filings

Your tax returns, SST reports, payroll, and e-invoicing data should all reconcile with each other. Make sure your:

• Income tax returns match your audited accounts
• SST returns align with your sales revenue
• E-invoices match your declared income

Inconsistencies can trigger questions or a full audit.

Again, we can’t emphasize how important housekeeping is.

✅ Conduct a Tax Health Check

Proactively assess your company’s risk with a pre-audit review.

Before the IRBM does it, conduct your own internal review. This involves checking:

• Whether your deductions are valid
• If related party transactions are priced fairly
• Whether you’re claiming the right incentives

✅ Get Professional Help Early

If you receive a letter from IRBM—respond promptly. Avoid the “wait and see” approach.

A good advisor can help clarify or appeal if needed. If you get an audit or investigation letter, don’t panic—but don’t ignore it.

Respond within the deadline.

IRBM allows clarifications and extensions if you act quickly and transparently. The cost of errors or omissions during an audit can be high—penalties can go up to 100% of under-declared tax.

Having a tax agent or consultant guide you can help reduce exposure and ensure compliance.

👩🏻‍💼 Relax, stay calm

An IRBM tax audit doesn’t have to be a nightmare—if you’re prepared. The key is to act early, keep your records in order, and get proper guidance before issues arise.

📞 Need Help With Audit Preparation or Risk Review?

Our team of tax specialists and auditors has helped countless Malaysian businesses prepare for and navigate tax audits.

Reach out to us for a confidential consultation today.