What are the risks if heirs are not compelled to pay tax arrears?

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Risks Associated with Not Compelling Heirs to Pay Tax Arrears

The government maintains its stance against amending the Income Tax Act, which mandates that the administrator or next-of-kin of a deceased income taxpayer must settle tax arrears. This position is rooted in concerns that removing this obligation could significantly diminish the public's motivation and sense of responsibility towards tax compliance. Deputy Finance Minister Datuk Seri Ahmad Maslan has articulated that failing to enforce this provision might encourage irresponsible individuals to avoid their financial obligations, including outstanding taxes owed to the Inland Revenue Board (IRB), by simply delaying payment until their death.
Potential Decline in Tax Compliance Motivation

A primary risk identified by the government is the potential erosion of the public's willingness to fulfil their tax obligations. The existing legal framework, specifically Section 74 of the Income Tax Act 1967, ensures that income tax arrears are not automatically waived upon a taxpayer's death. This provision underscores the principle that tax liabilities are binding, even posthumously. If this compulsion were removed, it is feared that a segment of the population might perceive tax payment as optional, leading to a broader decline in tax morale and a reduced sense of civic duty concerning financial commitments to the state.
Encouragement of Irresponsible Debt Avoidance

The absence of a legal obligation for heirs to settle tax arrears could inadvertently foster a culture of irresponsibility. The Deputy Finance Minister suggested that some individuals might strategically wait to die as a means of escaping all outstanding debts, including those owed to the IRB. This scenario implies a loophole where a taxpayer could potentially avoid their financial responsibilities indefinitely. The IRB chief executive officer, Datuk Dr Mohd Nizom Sairi, has previously stated that the next-of-kin bear full responsibility for a deceased taxpayer's commitments, reinforcing the established expectation for the settlement of such debts.
Impact on Government Revenue and Public Services

While not explicitly detailed in the provided information, a widespread failure to collect tax arrears from deceased individuals would inevitably lead to a reduction in government revenue. Such a shortfall could have broad implications for the funding of public services, infrastructure development, and national programmes. The tax system relies on consistent revenue streams to function effectively, and any measure that significantly impacts collection efficiency, such as excusing heirs from debt repayment, poses a fiscal risk to the nation's financial stability and its capacity to deliver essential services to citizens.

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What are the risks if heirs are not compelled to pay tax arrears?

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