MITRS Doesn’t Create New Tax Risks — It Makes Existing Ones Easier to See

Director: “My friend company claim this also. Never kena before.”

Our response is not: “Can claim or not?”

Our response is: “If LHDN reviews your financial statements, tax computation and supporting schedules together next year, can we explain this claim?”

That question has always mattered. What MITRS changes is how soon it becomes relevant.

Filing First Is No Longer Enough

Before MITRS, some companies focused on one objective: get Form C out before the deadline. The supporting schedules, reconciliations, and detailed reviews sometimes happened afterwards — or not at all. Whether right or wrong, that approach existed because the supporting documents were not submitted together with the return. They sat in a filing cabinet until someone asked for them.

MITRS shortens that gap considerably.

The better question is no longer: “Can we submit Form C?”

It is: “Are we MITRS-ready?”

In practice, that means the financial statements, tax computation, capital allowance schedule, and incentive computations should already be capable of standing together as a complete and consistent set — before the 30-day window opens, not inside it.

The Wrong Test

Before MITRS, the practical reality for many SMEs was this: Form C was filed based on the tax computation, the financial statements were lodged with SSM, and detailed schedules were generally retained by the company or tax agent. These documents existed separately. In practice, many of them only ended up in the same place when LHDN opened an audit or issued a CP700.

That gap between filing and scrutiny made many businesses comfortable taking positions they had not fully reviewed. If nothing was questioned, the position felt safe. If a friend’s company claimed the same thing, it felt safer still.

Whether they realised it or not, many businesses ended up using a very simple test: Has anyone asked about this yet?

That is the wrong test.

Three Mindsets We Encounter

“My friend company claim also”

Peer behaviour is not a legal defence. We occasionally see companies inherit tax treatments from business associates, previous accountants, or industry practice. None of these automatically determine whether a claim is deductible. What another company claims, whether it was queried, and whether it was ultimately allowed are three separate questions — and the answer to the first tells you nothing about the other two. A claim that has never been questioned is not the same as a claim that has been reviewed and accepted.

The better question: If the claim were reviewed, is there documentation to support it?

“LHDN won’t know one lah”

This reasoning depended on documents sitting in separate places. Under MITRS, that is no longer the case. From YA 2025, the audited financial statements, income tax computation, capital allowance schedule, and incentive computation are submitted together as a set. An expense that was absorbed into a broad Form C category — “other expenditure,” “maintenance and repairs,” “professional fees” — may now appear as a named line in the AFS notes.

The better question: Does the expense appear in the AFS in a way that raises a question the computation does not answer?

“Never kena before”

The compliance environment has changed with the phased rollout of e-Invoice and now MITRS. More information is submitted digitally at or around the filing stage, making inconsistencies easier to identify than under the previous filing environment. A position that escaped review in YA 2022 or YA 2023 is not protected from review in YA 2025, particularly where the supporting information now arrives at the point of filing rather than being requested afterwards.

The better question: Was the position defensible then, and is it still defensible now?

Where the Conversation Usually Happens

In our experience, very few tax issues start with a dishonest transaction. Most start with assumptions. Somebody says: “My friend claim before.” Or: “The previous accountant never adjusted it.” Or: “Last year no problem.” The expense goes in. Nobody revisits it. After a few years, it becomes accepted internally as “tax deductible” — even though nobody has actually reassessed the position.

MITRS does not create that issue. It simply makes it more important to address.

Over the years, we have noticed that disputes rarely arise from obvious items such as salaries, rental, or electricity. They tend to arise from expenses where deductibility depends on facts, purpose, and supporting evidence.

• Motor vehicle expenses — is the vehicle used wholly or substantially for business purposes?
• Travel expenses — does the trip have a genuine business purpose, or is it primarily personal?
• Entertainment — is it for clients, or for family and friends?
• Club membership — is it a condition of employment, or a personal benefit?
• Home utilities and internet — is there a business portion that can be substantiated?
• Management fees to related parties — is there a real service, a proper agreement, and a documented basis for the charge?
• Legal fees — is the matter revenue in nature (deductible) or capital in nature (non-deductible)?

None of these are automatically disallowed. And none of them are automatically allowed. The outcome in each case depends on what the facts are and whether those facts can be supported.

What MITRS Actually Changes

MITRS does not itself change the deductibility rules. Section 33(1) of the Income Tax Act 1967 remains central — the basic test is that an expense must be incurred wholly and exclusively in the production of gross income and must not be specifically prohibited under the Act. The rules on capital allowances, withholding tax, transfer pricing, and tax incentives are the same as they were before YA 2025.

What changes is the visibility of the information supporting those claims.

Before MITRS, a company might claim management fees of RM200,000 in the tax computation without LHDN seeing any further detail unless a CP700 was issued. Under MITRS, the AFS submitted alongside the computation may disclose that the payment was made to a related party, the nature of the services described in the accounts, and the quantum — all in the same submission package.

The claim has not become more or less deductible. The information supporting it — or failing to support it — is now more accessible.

MITRS has not changed the tax law. It has changed how visible the supporting facts have become.

The Better Question

In our practice, the question we apply before any contested claim goes into a computation is not whether the expense can physically be entered into the ledger. It is not whether someone else has claimed the same thing. And it is not whether anything has been raised in previous years.

The question is: If LHDN reviews the financial statements, tax computation, and supporting schedules together, can this position be explained and supported?

If the answer is yes — the expense is genuine, the documentation is in order, the treatment is consistent with the law — then file with confidence.

If the answer is “probably, but we’re not sure,” that is the gap to close before submission. Not after.

Before MITRS, many businesses asked: “Can we claim this?”

The better question today is: “If LHDN looks at the financial statements, tax computation, and supporting schedules together, can we defend this claim?”

In our experience, that single change in mindset prevents more tax problems than any checklist ever will.

Source: Section 33(1), Section 82B, and Section 120(1)(d), Income Tax Act 1967; LHDN MITRS official guidance; Finance Act (Amendment) 2024.