# Surviving an LHDN Tax Audit

> How LHDN selects and runs a tax audit under the 2025 framework, the 14-day clocks, the 15/30/45% penalty ladder, and when a voluntary disclosure is still worth making.

- Category: taxation
- Language: en
- Status: published
- Updated: 2026-07-20
- Canonical: https://negaraku.md/en/taxation/tax-audit

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Most guidance on Malaysian tax audits describes a **desk audit** and a **field
audit**. Neither term appears in the framework LHDN actually operates. The
current document — the *Rangka Kerja Audit Cukai Pendapatan dan Majikan*,
effective **15 March 2025** — uses two different methods, and the distinction
between them decides how much notice you get and how long the whole thing runs.

That framework also did something structural. It **revoked five separate
frameworks** and replaced them with one: the Tax Audit Framework of 1 May 2022,
the Finance and Insurance Tax Audit Framework of 1 May 2022, the Petroleum Tax
Audit Framework of 1 May 2022, the Employer Audit Framework of 1 October 2021,
and the Withholding Tax Audit Framework of 1 August 2015. If a source you are
reading cites any of those, it is describing revoked procedure.

## Semakan umum and semakan menyeluruh — not desk and field

**Semakan umum** (general review) is document review conducted **at LHDN offices
only**. It covers income adjustments, employer compliance checks, Labuan business
activity reviews and anything resolvable by correspondence. It can be escalated
to a comprehensive review, and you will be told in writing if it is.

**Semakan menyeluruh** (comprehensive review) involves an interview about the
business modus operandi and can be conducted **at your premises, at an LHDN
office (in person or online), or at any other place both sides agree — including
your tax agent's office**. It covers all business documents: income records,
expense and allowance claims, agreements tested for substance over form,
compliance with the conditions of approved incentives, withholding deduction and
remittance, and payroll records.

Only a comprehensive review involves an audit visit. A general review never does.

Both start the same way: a **Surat Memohon Dokumen dan Maklumat** issued by
official email or post, with **14 calendar days** to respond. Where a visit is
planned, a separate **Surat Pemberitahuan Lawatan Pematuhan** must be issued at
least **14 calendar days before** the visit date, stating the visit date, the
records to prepare, the years of assessment covered, the officer's name and the
expected duration. You may apply to postpone for reasonable and unavoidable
cause.

There is one situation where no letter comes at all: where LHDN already holds
clear documents and information forming a basis to raise an assessment, the
request letter is not issued, and the notice of assessment arrives with the
adjustment details and tax computation attached.

## What LHDN says about how cases are picked

The framework is brief but specific. Selection is by **computer system analysis
against defined tax-risk criteria**, and from information sources that "may
change from time to time". Three bases are named:

- information received from **third parties**;
- **industry issues**; and
- the **amount of controlled transactions** made by a company relative to
  significant transaction values.

The third is the transfer pricing hook, and it sits alongside a separate
framework — the **Rangka Kerja Audit Cukai Harga Pindahan**, effective **31 July
2025** — which carries its own graduated s.113B(4) penalties for missing
contemporaneous documentation.

The framework also states plainly that selection **does not mean the taxpayer has
committed an offence**. That is worth quoting back to a nervous board.

## Years covered, and the bar that isn't there

| Audit activity | Typical coverage | Statutory time bar |
| --- | --- | --- |
| Income tax (other than withholding, employer, Labuan) | up to **3 years of assessment** | 5 years, s.91(1) |
| Withholding tax | up to 3 years of assessment | 5 years, s.91(1) |
| Employer audit | up to **2 years of remuneration** | s.83 offences prosecutable up to **12 years** from the offence, s.121(1) |
| Labuan business activity | up to 3 years of assessment | 5 years, s.6(2) LBATA |

The critical line sits in the last column of the framework's own table: **the
coverage limit does not apply** where the audit involves **fraud, wilful default
or negligence**. That is s.91(3) of the Income Tax Act 1967 — and negligence, not
just fraud, is enough to remove it.

## The penalty ladder

For audit findings involving understated or omitted income, s.113(2) permits a
penalty **equal to the tax undercharged** — 100%. The framework applies a
concessionary scale instead:

| Situation | Rate under s.113(2) |
| --- | --- |
| First offence | **15%** |
| Second offence | **30%** |
| Third and subsequent | **45%** |
| Technical adjustment | **0%** |
| Tax fraud, wilful default | **100%** |
| Voluntary disclosure after the return filing deadline | **15%** |
| Voluntary disclosure within 6 months of the filing deadline, where an amended return was filed first | **10%** |

Two refinements decide which row you land on.

**Offence counting has a fixed reference window.** Whether you are a first or
second offender is determined by your record of s.113(2) penalties between
**1 January 2020 and 30 April 2022**. No penalty in that window means any audit
finding from 1 May 2022 onwards is treated as a **first offence at 15%**. A
penalty in that window means it is treated as a **second offence at 30%**.

**Technical adjustment is narrower than it sounds.** It means a difference in
interpretation of the tax law, determined on the facts and issues of each case.
It is expressly **unavailable** where LHDN has already stated its position
through a Public Ruling, Guideline, Practice Note, Income Tax Rules or an
exemption order. Once the Board has published a view, disagreeing with it is not
a technical adjustment.

The Director General may reduce or remit a penalty under **s.124(3)**.

## The voluntary disclosure calculus

The offer is time-limited in a very precise way. Voluntary disclosure means a
written disclosure to the relevant State Operations Director or Division
Director, made after the return filing deadline and **at any time before audit
action begins** — and audit action begins on the **date of the Surat Memohon
Dokumen dan Maklumat**.

So the calculus is:

- **Before the letter**: 15% (or 10% in the narrow amended-return case).
- **After the letter**: 15% if this is genuinely your first offence, 30% or 45%
  if not, 100% if the facts support wilful default.

For a first-time taxpayer with a straightforward omission, disclosure and audit
finding land on the same 15%. The value of disclosing is in the tail: it takes
the 30%, 45% and 100% outcomes off the table, and it lets you frame the facts
first.

Two conditions are easy to trip over. The disclosure must come with a defined
document set — the return, audited accounts or income statement, incentive
information and condition compliance, the complete original and amended tax
computations, and full details of the issues with supporting ledgers. Submitting
an incomplete set **without reasonable cause** means the disclosure is **not
accepted**. And the concession is **only offered to taxpayers who are compliant
with their return-filing obligations** — a company with outstanding returns
cannot buy its way into the 15%.

## Timelines you can hold LHDN to

Audit visits run **one to three days**, extendable for the size and complexity of
transactions, the form of records kept, and the level of cooperation given.

Case settlement periods run from the start of the audit — the date of the
request letter for a general review, the first day of the visit for a
premises-based comprehensive review, or the date of the *Surat Penentuan
Permulaan Tempoh Penyelesaian Kes* where the comprehensive review happens at an
LHDN office:

| Audit type | Settlement period |
| --- | --- |
| Tax audit / employer audit | **90 calendar days** |
| Withholding tax — payor | 90 calendar days |
| Withholding tax — payee | **180 calendar days** |
| Finance and insurance — brokers, banks, leasing, intermediaries | 90 calendar days |
| Insurance and takaful business, including reinsurance and retakaful | **240 calendar days** |
| Petroleum — exploration and production | **450 calendar days** |

They do not apply where further confirmation is required from other parties —
which is a wide exception, but the periods are still a legitimate reference point
when a case has gone quiet.

A settled audit **will not be re-audited for the same year of assessment and the
same issue**. New issues or new information for that year can still reopen it.

## After the finding

Adjustments, tax and penalty arrive in a **Surat Penyelesaian Kes**, followed by
the notice of assessment or a notice of non-chargeability. Where nothing is found,
you get a *Surat Penyelesaian Kes Tanpa Pelarasan Pendapatan*.

Payment is due **within 30 days of the date the notice of assessment is raised**,
through ByrHasil using the Bill Number or TIN. Instalments can be applied for,
with justification, to the State Operations Director or Division Director. Miss
the deadline or default on an agreed instalment and an increase applies to the
unpaid balance.

The audit finding and the appeal are separate tracks. Disagreeing with the
finding does not suspend payment — see
[appealing a tax assessment](/en/taxation/tax-appeal) for the 30-day Form Q clock
that starts when the notice is served.

## Common mistakes

**Working from the 2022 framework.** It was revoked on 15 March 2025 along with
four others. The penalty table survived largely intact; the procedure did not.

**Treating the 14 days as soft.** Failure to respond does not stop the audit — it
lets LHDN proceed on the documents it already has, and the framework expressly
warns that claimed expenses may be disallowed and an additional assessment
raised.

**Assuming records held offshore are LHDN's problem.** The framework puts the
burden on the taxpayer to obtain documents held abroad by a related company and
produce them complete — at your premises for a comprehensive review, or before
the visit.

**Calling every adjustment a technical adjustment.** If LHDN has published its
position in a Public Ruling, guideline, practice note, rules or an exemption
order, the 0% rate is off the table.

**Disclosing after the letter arrives.** The window closes on the date of the
*Surat Memohon Dokumen dan Maklumat*, not on the date of the visit.

**Forgetting the employer limb.** The same framework covers employer audits under
s.83 and s.107, where the exposure is a compound under s.124 rather than a
percentage penalty — and repeat offences raise the compound amount.

## What's next

If a request letter has landed, diary the 14 days, confirm which review method is
running, and check whether the years cited are inside the three-year coverage or
whether LHDN is signalling negligence by reaching further back.

If nothing has landed and you know there is an error in a filed return, the
disclosure arithmetic above is the whole decision — and it only works while you
are ahead of the letter.

If the issue is transfer pricing, read the separate 2025 transfer pricing audit
framework alongside this one; its documentation penalties run on a different and
much steeper scale.

## Sources

- Rangka Kerja Audit Cukai Pendapatan dan Majikan — https://www.hasil.gov.my/wp-content/uploads/20250315-rka-cpm.pdf (LHDN)
- Rangka Kerja (framework index) — https://www.hasil.gov.my/perundangan/rangka-kerja/ (LHDN)
- Income Tax Act 1967 (Act 53), reprint as at 21 May 2024 — https://www.hasil.gov.my/wp-content/uploads/20240521-akta-cukai-pendapatan-1967-akta-53.pdf (LHDN)
- Rangka Kerja Audit Cukai Harga Pindahan 2025 — https://www.hasil.gov.my/wp-content/uploads/rangka-kerja-audit-cukai-harga-pindahan-2025.pdf (LHDN)
- Kesalahan, Denda dan Penalti — https://www.hasil.gov.my/perundangan/kesalahan-denda-dan-penalti/ (LHDN)

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Source of truth: https://github.com/negaraku-md/NegaraKu.md
License: CC BY-SA 4.0