What Are the Potential Liabilities for Tax Professionals?

Michael Cheah, Tax Advisory Senior Manager & Norhayati Ruslan, Indirect Tax Manager


The accounting profession has been built around a set of core values such as honesty, integrity, objectivity, competence, independence, professional responsibility, confidentiality and service. 

Therefore, accounting professionals comprising accountants, auditors, tax consultants, etc., have always been held to maintain a high level of ethical and professional standards. The reason for this is that the accounting profession has a key role in delivering public value, and in order to contribute to the public value, ethical conduct is seen as a key characteristic that the accounting profession must demonstrate.

That being said, the accounting profession has seen some high-profile cases over the past few decades. One of the most prominent cases was the Enron scandal which was seen as one of the largest, most complicated, and notorious accounting scandals of all time. The auditors of Enron were found to be guilty of charges relating to their role in the Enron scandal which ultimately resulted in their fall from grace.

Closer to home, we are not without fault as we have seen some high-profile cases of our own which have brought light on the accounting profession. One of the most prominent cases is the 1MDB scandal which has seen key stakeholders of the company filing lawsuits to claim damages against the former auditors of 1MDB. Another case that comes to mind is the Serba Dinamik case in which the company has gone to court claiming that its former auditors did not properly carry out its statutory duties and were negligent.

However, most of the major cases that have happened revolved around the auditing profession. In the tax profession, there have been cases such as Perak Integrated Network Services Sdn Bhd & ORS v RA Tax Services Sdn Bhd, Kerajaan Malaysia v K-Asia Holdings Sdn Bhd & Anor and Lim Kar Bee v Duofortis Properties (M) Sdn Bhd. 

In these cases, the tax consultants had allegedly been negligent in performing their duties for the taxpayers or in providing advice with the intention to avoid payment of tax.

Tax Professionals and Their Roles

Firstly, who is a tax agent? A tax agent is defined under Section 153(3) of the Income Tax Act 1967 as any professional accountant or person approved by the Minister. Although not specifically provided for under the Real Property Gains Tax Act 1976, Stamp Act 1949, Sales Tax Act 2018, Service Tax Act 2018 or Customs Act 1967, a taxpayer may appoint a tax professional to assist and/or advise them on their tax matters which may fall under any of the legislation.

The role of a tax professional is crucial in the country’s tax collection efforts. A report by the Forum on Tax Administration acknowledged the crucial role that intermediaries, such as accountants or tax professionals, play in ensuring tax systems function properly. Therefore, the role of a tax professional is two-fold.

On one hand, a tax professional who has been engaged by a taxpayer will assist the taxpayer to minimise the taxes that are due and payable from the profits of its business. The crucial factor in this process is that tax professionals will plan the taxpayer’s tax affairs in accordance with the prevailing tax laws and legislation, including but not limited to leveraging on available tax incentives, double taxation agreements, available tax deductions, etc., to minimise its taxes. 

On the other hand, a tax professional who is licensed by the Minister of Finance under Section 153(3) of the Income Tax Act 1967 has an implied duty or responsibility to play a role in improving the tax compliance rates of taxpayers across the country.

In this sense, tax professionals have a duty to provide awareness and education to their clients so that they are aware of their tax responsibilities. When advised correctly, the role of tax professionals may result in an improvement in tax returns submitted which would ultimately lead to an increase in the tax compliance rates of the country. 

Given these two hats the tax professional is wearing, which master is the tax professional serving?

To ensure that tax professionals as advisors to taxpayers are providing tax advice and consultation which are in accordance with the prevailing tax laws, the various legislation have included certain fine provisions to penalise tax professionals that assist or collude with taxpayers to illegally evade tax. These fines are intended to discourage tax professionals from assisting or planning any tax evasion or illegal tax planning activities. We will look at the various fines later in the article.

Professional Code of Ethics​
Tax professionals should carry out their duty to their clients professionally and honestly. What constitutes a professional code of ethics? As a guideline, we look at the various accounting bodies’ code of ethics and conducts and the common principles that they share. For this purpose, we have looked at the code of ethics and conduct of the CPA Australia which is based on the Accounting Professional & Ethical Standards Board, the Association of Chartered Certified Accountants, and the Malaysia Institute of Accountants which share the following core principles:

  • Integrity
    • To be straightforward and honest in all professional and business relationships.
  • Objectivity
    • Never compromise professional or business judgements because of bias, conflict of interest or undue influence of others.
  • Professional Competence and Due Care
    • To attain and maintain professional knowledge and skill at the level required to ensure that the client or employing organisation receives competent Professional Activities, based on current technical and professional standards and relevant legislation; and act diligently and in accordance with applicable technical and professional standards.
  • Confidentiality
    • To respect the confidentiality of information acquired as a result of professional and business relationships.
  • Professional Behavior
    • To comply with relevant laws and regulations and avoid any conduct that the Member knows or should know might discredit the profession.

The five (5) core principles shared above may serve as a guide on how tax professionals should act when carrying out their duties to their clients and should ensure good tax practices while maintaining a high level of tax compliance. It will also ensure that tax professionals will at all times conduct themselves ethically, fairly, and professionally to maintain the balance between the best interests of their clients while providing advice that is in line with the prevailing tax laws.

That being said, the principles above are not legally binding as they are not written in any law that binds tax professionals. As such, it is reiterated that they are merely a guide for tax professionals to conduct themselves in a professional manner in their dealings with their clients.

Fine Provisions under the Respective Legislations

A tax professional in carrying out his duties should be forever conscious of the fact that he/she shall carry out his / her duties in a responsible manner so as to always remain within the confines of the law. Failing which, they may be liable to fines under the respective legislations.

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