INTRODUCING tax identification numbers (TIN) for individuals aged 18 and above by 2021 can be one of the solutions to address the “shadow economy”, Deloitte Malaysia said.

Shadow economy refers to goods and services unreported for taxation, encompassing undeclared income from freelancing work, illicit activities like prostitution, sale of illegal drugs, smuggling of cigarettes and liquor, as well as accepting bribes.

Tax expert Sim Kwang Gek said TIN will help tax authorities create a database of Malaysian financial cash flow.

“For instance, if you spend a certain amount of money on something but at the same time, based on the tax authority records, you are not paying tax then there is a mismatch here. Therefore, the authority can investigate further (on) where the source of income comes from,” she told Bernama on the sidelines of the Deloitte TaxMax 2019 in Kuala Lumpur today.

Sim added that this would be a good step to tackle the shadow economy.

Tax audit and investigation expert Chow Kuo Seng said the Inland Revenue Board (IRB) should leverage on its good intelligence activity and follow the money trail to tackle the shadow economy.

He said chasing shadow economy businesses would be difficult but doable if the board could identify the cash flow of such entities.

“(Use) money trail (method) to identify the customers, which is the source of income, and suppliers who received the payments from the business,” he said.

With this, Chow said IRB could identify and determine the size of the taxable income of the business.

The IRB should also leverage on its good intelligence activity to identify big players in the shadow economy, he said.

“IRB should look for extraordinary wealth, which I think its intelligence is very good at, and they should leverage on that expertise,” he added.

Themed “Rebuilding the Economy for our Future”, the 45th edition of the annual tax seminar drew more than 500 delegates to discuss the 2020 Budget and its implications on the national economy moving forward into the milestone year. – Bernama, November 6, 2019.