LET it be known that the director-general (DG) of the Inland Revenue Board (IRB) has a number of powers to ensure compliance with act 53 of the Income Tax Act 1967 (ITA), one of which is power of access to buildings and documents.

Section 80 of the ITA allows the DG to enter and search land or premises, and to copy or take possession of books and records.

These are wide powers, which may be exercised without a search warrant. Section 137 of the ITA, however, requires any person exercising the right of access or the right to take possession conferred by Section 80 to carry a warrant in the prescribed form issued by the DG.

The warrant must identify the holder and his office and must be produced by the holder on demand to any person having reasonable grounds to make the demand. Where a warrant is produced, it must be presumed to be genuine and the person must be presumed to be the person referred to in the warrant.

The statutory power has been enforced even against lawyers. This is illustrated in the case of Ketua Pengarah Hasil Dalam Negeri v Bar Malaysia (2022) 2 MLJ 428. The facts as they appear in the judgment of the Court of Appeal are as follows:

On November 3, 2016 the Malaysian Bar wrote to the DG to inform the latter of complaints received from members of the Bar – that is, lawyers. The complaints were that the tax officers had been carrying out raids on law firms and offices to conduct audits on their clients’ accounts and insisting on having sight of accounting books and records pertaining to these accounts.

The Malaysian Bar expressed its objections and its view that the documents and information sought by the tax officers were protected by solicitor-client privilege and should not be made available to the tax officers. On December 7, 2016 the DG replied, asserting that the audits complained of were necessary to ensure ‘tax compliance’ by taxpayers.

The DG maintained that the audits were not in breach of any solicitor-client privilege by reason of section 142(5) of the ITA which overrides the provisions of chapter IX of part III of the Evidence Act 1950 (EA) and the Legal Profession Act 1976 (LPA). Accordingly, it was maintained that the actions of the tax officers complained of were not in breach of any solicitor-client privilege.

In light of the divergent views of the parties and their disagreement as to whether the law relating to solicitor-client privilege was being ignored and under threat by the tax officer’s actions complained of, the Malaysian Bar brought the matter to court seeking several declarations on the issue.

On April 2, 201 the High Court ruled in favour of the Bar. In essence, the High Court judge held that section 142(5) of the ITA did not override solicitor-client privilege as provided under section 126 of the EA 1950.

Accordingly, the privilege provided under section 126 of the EA precluded the tax officers from insisting on documents or information in respect of or relating to the clients’ accounts of advocates and solicitors.

The DG appealed. By a unanimous decision, the Court of Appeal dismissed the appeal. The court did not agree with the DG’s contention that clients’ accounts and information relating to them did not come within the purview of section 126 of the EA.

The court ruled that financial information or data exchanged between a lawyer and his client and any such data contained in any document and kept in respect of the client’s account would all come within the ambit of Section 126 of the EA which provides for solicitor-client privilege.

So, even law firms and offices get “raided”. The so-called raids are but audits to ensure tax compliance by taxpayers.

It is therefore not surprising that the IRB has issued a statement that inspections of premises, including residential premises, are part of the enforcement process to ensure the people fulfil their tax obligations consistently. The IRB has said that it does not target specific individuals, and that inspection of taxpayers’ premises is part of normal enforcement actions. 

Enforcement actions, however, must be in accordance with the law, and must be exercised bona fide, reasonably, without negligence and only for the purpose as stated by the law.

No one, not even law enforcement officers, is above the law. – June 19, 2023.

* Hafiz Hassan reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.