Quick answer: An LHDN tax audit can lead to additional tax and penalties where a return is incorrect. Under the current audit framework, the standard penalty for a first incorrect-return offence is 15%, increasing for repeated offences. A taxpayer who disagrees with an assessment generally has 30 days from service of the assessment to submit Form Q.
Current income-tax audit penalty rates
The Tax Audit Framework on Income Tax and Employer states these general rates for an incorrect return:
| Situation | Penalty rate |
|---|---|
| First offence | 15% |
| Second offence | 30% |
| Third and subsequent offences | 45% |
| Technical adjustment | 0% |
| Wilful default or fraud | 100% |
The applicable provision and rate depend on the facts, conduct and type of adjustment. Transfer pricing adjustments have a separate surcharge regime.
What should you do before accepting an adjustment?
- Check the assessment year, amount and legal provision.
- Reconcile the proposed adjustment to LHDN’s audit findings.
- Separate factual errors from technical disagreements.
- Collect contracts, invoices, calculations and authorities supporting the company’s position.
- Calculate the tax, penalty and any consequential effects.
- Record the date the assessment was served.
How do you appeal an LHDN assessment?
A taxpayer who is dissatisfied with an assessment may generally appeal by submitting Form Q within 30 days after the notice of assessment is served.
From 1 June 2026, HASiL permits eligible income-tax assessment appeals and extension-of-time applications to be submitted online through e-Rayuan Taksiran in the MyTax portal. The facility does not cover capital gains tax, withholding tax or assessments raised from investigation activities.
- For a manual Form Q submission, prepare four copies and ensure at least one is an original;
- State detailed grounds for the appeal;
- The form must be signed by the taxpayer or, for a company, an authorised person; and
- Ordinary email is not the MyTax e-Rayuan channel; use the prescribed MyTax service or the applicable manual procedure.
Protect the 30-day deadline even where discussions with the audit team are continuing.
What if the 30-day deadline is missed?
Form N is used to apply for an extension of time to appeal. HASiL states that it is generally available within seven years after the appeal period expires, but the taxpayer must give convincing reasons for the delay. Approval is not automatic.
Objection, appeal and evidence strategy
An effective challenge identifies the precise disputed finding, the relevant law, the facts and the supporting documents. Broad statements such as “the expense is for business” are rarely enough. Create an issue-by-issue schedule showing the amount, LHDN position, taxpayer position, evidence and requested outcome.
For live cases, start with the LHDN audit-notice response guide. HTL’s tax-audit support can help analyse findings, prepare reconciliations and manage response deadlines.
This article provides general information and is not a substitute for advice on a specific assessment, penalty or appeal.
