Powers of the Customs investigator

 By Aaron Bromley, Dave Ananth

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The powers of the Royal Malaysian Customs Department (“RMCD”) to enforce the GST legislation are specifically provided for in Part X of the GST Act 2014 (“GSTA” or “the Act”). This article explores the enforcement powers of RMCD in investigating GST offences. It is acknowledged that Customs officers also have powers under the Customs Act 1967 and Excise Act 1976, but these are not within the purview of this article.

GST offences are complex in nature. Tax agents and legal advisors dealing with this relatively new regime in Malaysia need to fully understand the potential offences and the implications. Unlike the powers of the police, the extent to which RMCD can investigate potential offences and enforce the law is not as well-published in the local media, though we expect this will change in the near future. Sometimes, there is a perception that GST offences do not carry any period of incarceration or that Customs officers do not have adequate powers under the GSTA. Such a perception is clearly misplaced.

Pursuant to the GSTA, RMCD has a wide range of powers to enforce the law. There are offences which require mens rea and also strict liability offences. Non-payment of GST amounts and other offences can result in incarceration.  The Revenue Prosecutor in New Zealand calls it, “theft of government money”. We expect a similar approach in Malaysia.

Section 80 of the GSTA provides that a senior officer of GST shall have all the powers of a police officer of whatever rank as provided for under the Criminal Procedure Code in relation to enforcement, inspection of goods and also investigation; and such police enforcement powers are in addition to the powers already provided for under the Act. The Criminal Procedure Code stipulates that a police officer can execute powers in relation to the search of a person arrested, breaking open doors, search of a person’s name and address, access to computerized data and many others.

The definition of a “senior officer of goods and services tax” in the GSTA (Section 2) is as below:-

i.   The Director General (DG);

ii.   Any Deputy Director General of Customs and Excise appointed under 

     subsection 3(1) of the Customs Act 1967;

iii.  Any Assistant Director General, Director, Senior Assistant Director and 

     Assistant Director of Customs and Excise appointed under subsection 3(1) of 

     the Customs Act 1967;

iv.  Any Senior Superintendent or Superintendent of Customs and Excise 

     appointed under subsection 3(4) of the Customs Act 1967; or

v.   Any officer of goods and services tax, conferred with the powers of a senior 

     officer of goods and services tax under subsection 5(4).

Section 5(4) of the GSTA is perhaps the catch-all provision, giving Customs DG authorization to any officer (not being a senior officer) the power of a senior officer of Customs. However, there is a time limit for each authorization, which is 90 days. 

Section 81 provides that senior officers shall, at all times, have full and free access to the place where a business is carried out. Does this mean unfettered access? In practice, before a search takes place, the Customs officer would first have a verbal conversation with the owner of the business during normal business hours. If the Customs officer wishes to search the premises, a notice period of 14 days is usually given, but this is not in the law.  The 14-day notice does not apply to special audits or if there is reasonable cause to believe certain evidence will be destroyed.

The above is not to say that unannounced visits do not happen, and in our experience with taxpayers, such visits are becoming increasingly common. It is imperative therefore that taxpayers are prepared for such a visit. In this regard, the Audit Framework guide from the Compliance Division of RMCD dated 20 June 2016 is a useful tool to understand RMCD’s audit approach and framework.

The Act provides that the business owner or any other person present at that time should assist the senior officer and provide reasonable facilities and assistance to exercise their duties under the Act. We take that to mean providing not only access, but also reasonable space for them to inspect documents and opportunity for them to do so. We opine that the terms “at all times” or “reasonable” as stated in the GSTA can be interpreted widely and are subjective in nature. It is a question of fact, taking into account the surrounding circumstances. By reading the Act, it seems that it is possible for the Customs officers to visit the business premises at any time without prior notice and the business owner (if not present at the business premises) can be requested to return to t the business premises to assist RMCD  with the investigations.

Taxpayers must be aware of what information the GST officer typically requires during his or her visit. Section 81(3) clearly states that the officer may:-

a) Require the taxable person or any other person to produce any goods, 

    documents or things which relate to the person's business;

b) Examine any goods, documents or things;

c) Seize and detain any goods, documents or things that, in his opinion, 

    may relate to any offence under the Act;

d) Require a person to answer any questions relating to any goods, documents or 

    things;

e) Require any containers, envelopes or receptacles in the place or premises to be 

    opened;

f)  At the risk and expense of the owner of the business, open and examine any 

    packages or any goods or materials in the place or premises; or

g) Take samples of any goods or materials and make copies or extracts of any 

    documents, if he deems them necessary.

The above section is crucial for the taxpayers to understand. Failure to heed the officer’s request in relation to the above may be considered “obstruction”. Section 81(4) states that if the senior GST officer is unable to obtain ‘full and free access” to the premises, he may at any time enter the place by force if necessary. Again, there seems to be wide-ranging powers given to RMCD senior officers. In the earlier mentioned GST Audit Framework guide, RMCD has clarified that it will give a 14-day advanced notification (with the exception of special audits) to businesses of upcoming field audits. In addition, the taxpayer may also request for a deferment of the audit due to unavoidable circumstances and reasonable grounds. This is in RMCD’s guidelines but not in the law. The Act provides that any person who refuses to allow a senior officer to enter the premises, commits an offence and may be liable for imprisonment for a term not exceeding seven (7) years, a fine not exceeding RM100,000, or both, upon conviction.

Section 82(1) of the GST Act provides that if there is reasonable cause to believe that a premises is used to store or conceal goods which may afford evidence to an offence, the Magistrate may issue a warrant authorizing any officer at any time, with or without assistance, to enter and search the premises, and arrest a person in the premises or conveyance, if suspected of concealing or depositing goods. The officer authorized by the warrant may even break open the doors of the premises, if necessary; forcibly remove any obstruction to search and seize; and detain any person in the premises until the search is complete. A senior officer also has the right to enter your business premises even without a warrant, in accordance with Section 83 of the GSTA, if he believes a business premises is concealing or depositing goods which may afford evidence to an offence, and by waiting for a warrant, he believes that all goods will be removed. Thus he may exercise all his powers as stated earlier and gain access to your business premises as if a warrant had been issued.

Power to stop and examine conveyance

The Act further provides that a senior officer has the power to stop any conveyance of goods if he believes the goods carried relate to an offence. The relevant provision in relation to stopping conveyance can be found in Section 84 of the GSTA. As such, if you are the driver of a truck or van while delivering goods, you can be stopped by the senior officers for an investigation where there is belief that the goods carried relate to a GST offence. The officers will then examine your goods and are allowed to move your vehicle to another place for examination. The driver is not allowed to continue his journey until instruction is given by the senior officer.

Section 85 of the GSTA further allows the officer to seize goods if the goods are believed to be used in connection with an offence or violation. Whenever goods are seized by a Customs officer, a notice in writing should be delivered to the owner of the goods personally by the officer, or by posting the notice to the place of residence. Further, any animal and/or perishable goods which have been seized may be sold and the proceeds will be held to abide claims or prosecutions.

A senior officer may also, temporarily or permanently, return the movable goods, subject to a security of an amount which is not less than the value of the movable goods being returned and the tax due and payable. The seized goods may also be sold or destroyed by the senior officer, depending on the circumstances - whether it is a living creature or perishable or dangerous in nature. The proceeds from the sale will be offset against any results of prosecutions or claims. When the goods are returned to the owner or disposed, RMCD will have to issue a certificate to prove the return or the disposal of the goods. If the owner of the goods fails to surrender the goods returned to him previously when demanded or fails to comply with the conditions when the goods are returned, he is committing an offence and will be fined or face imprisonment, or both.

GST officers can arrest persons committing offences under the GSTA (Section 87). The officer may arrest without a warrant if a person is found attempting, employing or aiding a person to commit a crime, or the person is believed to possess goods which are liable to seizure. In addition, the arrested person may be searched in the presence and under the supervision of a senior officer. However, for goods and baggage searches, these can only take place in the presence of the owner, where his presence is requested and he presents himself in “reasonable” time. Taxpayers must also be aware that for the purpose of identification, a senior officer may take photos, finger and thumb impressions, and any other form of identification of any person arrested.

Given the increased GST audit activities by the RMCD, it is timely that taxpayers be aware of their rights and obligations, to avoid misplaced views of the enforcement powers provided for under the GSTA and to ensure audits and investigations proceed appropriately.

Aaron Bromley is a Partner & Dave Ananth is a Director in Ernst & Young Tax Consultants Sdn Bhd. The views in this article are those of the author and do not necessarily reflect the views of the global EY organization or its member firms. This article contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Member firms of the global EY organization cannot accept responsibility for loss to any person relying on this article.