📘 What is a Capital Statement?

A Capital Statement is a document that outlines your net worth over a specific period—typically between two to three years. It helps the Inland Revenue Board of Malaysia (LHDN) assess whether your wealth aligns with your declared income and lifestyle. This tool is especially useful in identifying undeclared income or sudden unexplained increases in assets.

🔍 Why Does LHDN Use It?

Capital statements are used as part of LHDN’s audit strategy to ensure tax compliance. Through this method, the authority can:

• Evaluate whether your income matches your increase in wealth
• Identify any hidden or unreported sources of income
• Utilize Big Data analytics and AI systems to detect inconsistencies
• Support a “Best Judgement Assessment” under Section 90(3) of the Income Tax Act 1967 when there is insufficient or questionable information

👤 Who is Usually Targeted?

While any taxpayer may be selected, the following groups are more likely to be asked to submit a capital statement:

• High-net-worth individuals
• Entrepreneurs, business owners, and self-employed professionals
• Taxpayers with irregular filing patterns or non-filers
• Individuals under investigation for money laundering or suspicious financial activities (as per AMLATFA 2001)

🧾 How to Prepare Your Capital Statement

A complete capital statement should include the following categories:

• Assets: Cash in hand and bank, real estate, vehicles, shares, and business investments
• Liabilities: Housing loans, car loans, personal loans, and credit card balances
• Sources of Income: Employment income, dividends, rental income, business revenue
• Living Expenses: Daily and monthly household spending, education, lifestyle choices, travel, and other personal costs

⚠ Potential Consequences of Non-Compliance

Failure to cooperate or submit accurate information may result in serious implications, including:

• Tax assessments made based on LHDN’s best judgement
• Fines and penalties under Section 113(2) of the Income Tax Act
• Investigations under the Anti-Money Laundering Act (AMLATFA 2001)
• Prosecution and criminal charges for tax evasion

📌 Useful Resources & References

• LHDN Tax Audit Framework (Finance & Insurance)
• Section 90(3) of the Income Tax Act 1967
• Anti-Money Laundering Act (AMLATFA) 2001
• PwC Malaysia – Tax Audit Readiness Guide