PAC chairman Mas Ermieyati Samsudin attributed the decline to tax write-offs and reduced tax assessments.

“The reduction is attributed to taxpayer appeals (56.2%), court decisions (8.2%), and tax exemptions under Section 127(3A) of the Income Tax Act 1967 (35.6%),” she said in a statement today.

However, she warned of potential leakage in tax collections, citing a loophole that allows LHDN officers to approve tax reductions without a clear limit.

“The power to approve tax reductions has been delegated to officers at various levels, including state branches, without a fixed limit.

“PAC sees it as a loophole that could lead to revenue leakage. This opens the door to possible leakages,” she said.

PAC initiated its proceedings on Nov 5, 2024, following the release of the Auditor-General’s Report 3/2024, which highlighted issues in the federal government’s financial statements for 2023.

The parliamentary watchdog noted that LHDN had introduced new measures to tighten governance, including mandatory audit committee reviews for cases involving more than RM10 million.

Mas Ermieyati added that LHDN had implemented an internal tracking system, ReMS 2.0, to detect non-compliance, and would soon enforce e-invoicing to improve tax collection.

Other key findings from the PAC report included an increase in tax arrears from RM18.484 billion in 2017 to RM43.693 billion in 2021, largely due to stricter enforcement by LHDN through audits and investigations.

PAC also recommended reforms such as stricter enforcement, better tax assessment processes to reduce appeals, and stronger laws to prevent tax evasion.