Recent tax amendment or harrassment?

In my pre-uni studies, my economics teacher taught me that tax is a way for government to take money from the rich to aid the poor, and help to make our lives better by providing things like street lights, education and health care at affordable cost since these are good for public and not for private profits.

However, after the routinely infuriating and forgetten-after-a -while Auditor General reports, and skyrocking national debts, I wonder if the recent tax amendments is really good for the public, or "maximise tax base" (in layman's word gasak as much as possible) to cover the endless wastage, leakage and every-can-see-except-MACC corrupt practices.

Budget 2012 has introduced some eyebrow raising proposals. Although we have the customary high praise to heavens from the usual BN suspects, even some MCA fellows expressed their reservation over some proposals, most probably they have received protests from business community they are closed to or belong to.

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http://www.mysinchew.com/node/65627

MCA objects to proposed changes in Income Tax Act

 2011-10-26 13:43

KUALA LUMPUR, Oct 26 (Bernama) -- MCA objected to the proposed changes in the Income Tax Act which would give the director-general of Inland Revenue Board sole discretion over late or incorrect submissions, said its president Datuk Seri Dr Chua Soi Lek.

"If the amendments are passed, the new Section 107D will enable the director-general to direct taxpayers to make advance payments if he has reasons to believe that taxpayers have not submitted their returns correctly, even if no assessments were issued.

"Meanwhile, the proposed changes to Section 81 would eventually lead to the absolute power of the director-general to disregard any information, beyond the expiry of the specified time," he said when contacted.

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Let’s examine the above 2 proposals in greater details, and some others as well.

Advance payment of tax by installments (Section 107D)

Before:

No law to empower IRB to direct a tax payer to start paying tax installments before an assessment or composite assessment is made. (Assessment = calculation of the amount of tax you owe)

Now:

It is proposed that IRB be empowered to direct a tax payer to pay by installments and in advance (isn’t this a hidden national debt?) before any assessment or composite assessments are made.

What this mean is that IRB staff will not be encouraged to be efficient. If a cat wants to eat a mouse, it has to chase the mouse down, catch it before she can eat it. This piece of law will remove incentive or reason for IRB staff to be efficient. IRB can just direct tax payer to pay whatever amount IRB fancy.

Collection target issue resolved. The amount directed maybe more than necessary but IRB staff can take their own sweet time to calculate and find out while businesses bearing risk and general economic environment will struggle with their cashflow.

Rakyat diutamakan, civil servants deserve bonus across the board and cannot be removed easily.

Power to disregard information furnished after expiry date (Section 81)

Before:

IRB can ask for information or evidence to ascertain someone’s tax liability to be supplied within a due date. This is reasonable.

Now:

It is proposed that IRB is empowered to disregard any information supplied after expiry of due date and the information disregarded cannot be used to dispute IRB’s calculation in any proceedings before Special Commissioners or Courts.

Ok, if a tax payer deliberately do not keep any information that he deserves what coming but what about those genuine cases where there is a good excuse or IRB is asking for the impossible?

http://www.google.com.my/url?q=http://www.thesundaily.my/news/201320&sa=U&ei=BI27TpOcK8Sb8QOc99jJBw&ved=0CBcQFjAA&usg=AFQjCNGJF_NGO-wpmX8m7m4maUre768SWA

The recent reports that the government intends to widen the authority given to LHDN is worrying. My experience (and I am sure those of many others) is that the tax authorities do not understand how businesses work. ……. especially multinationals, operate. During my interactions with the tax audit department, it seemed to me and my colleagues at our corporate office that the auditor was not interested in all the supporting documentation that we were able to provide to support every deduction we took.

The above is extracted from an article well deserved to be reproduced in full after my article. We know the brightest minds are not in IRB (otherwise Talentcorp won’t be necessary) and most IRB officers do not have practical experience in commercial world.

Now this is very powerful tool for the IRB, even to the extend of denying the judiciary to examine a piece of evidence. I thought judiciary and legislation are suppose to have a check and balance working between them, you know, the basic thing about separation of power in a democracy.

Review of appointment and duty of representative (Section 67(4) and Section 68))

Before:

S67(4); an appointed representative is responsible for the principal and the IRB can assess and charge income tax to the name of the representative on behalf of the principal.

Now:

S68: the IRB can appoint the representative as an agent to remit the tax or debt due by the principal. The tax is payable by the agent even though the assessment is not issued in the name of the representative.

Let’s imagine this scenario – a company rent a shop lot owned by you, section 68 above allows the IRB to visit you and say, ‘I hereby appoint you as agent of ABC Sdn Bhd who is renting your shoplot. You will take the rental received and pay to IRB as their tax.” Funny it seems, but this is how the law will work out to be. What if ABC Sdn Bhd did not pay rent for 2 months and ran off in the middle of the night? You still pay for ABC Sdn Bhd and good luck to you.

Compensation for late refund of income tax

Before:

No compensation for late refund

Now:

A 2% compensation will be payable to tax payer where the refund is made 90 days after due date for electronic filing or 120 days after manual filing.

While this is good, it is still unfair because it does not differentiate a tax payer who submits his taxes early like in February, compared to another who rush and finish it at the stroke of filing deadline. The clock for 90 days should start ticking the moment the filing is submitted.

Proposed changes to section 54A(1) and 54A(2) – a torpedo for  shipping companies.

Before:

A tax resident of Malaysia who earns income from transporting passengers and cargos with Malaysian ship at sea are fully exempted from tax.

Now:

30% of statutory income is subject to tax while current year adjusted loss of 1 Malaysian ship will not be available to offset from income from another Malaysian ship.

Now the government is going after ship owners. Previously since their income is exempted from tax, now they have to pay and even pay in advance.  Also, this may result in a company who is making total loss still having to pay tax. If a company has 2 Malaysian ships, 1 making a loss of RM200,000 while the other is making a profit of RM150,000. The accountant says the total company losses is RM50,000 while IRB will say no, I will tax you RM200,000.

Please note that for all companies, current year business losses are allowed to be offset against current year income so why the inconsistency?

As businessmen, they will push this tax burden onto consumers so we will see higher travelling and product costs.

Extension of exemption period on income of corporate advisors on the trading of non-ringgit sukuk

Presently “qualified institutions” are given tax exemption earned from fees and profits relating to non-ringgit sukuk from Malaysia and 2012 budget proposal has extended their tax holiday from 2009 till 2011 for another 3 years from 2012 to 2014.

Now, national debts is already running high with all these sukuks that gadai away schools and hospitals. Major banks like CIMB (headed by the brother of the PM) is really earning great bucks from doing all these multi billion transactions. One wonder why these corporate fat cats deserve tax exemption? Malayasian banks are earning great and secured profits and certainly do not deserve such protection.

http://www.businessweek.com/news/2011-01-03/cimb-beats-hsbc-as-top-sukuk-underwriter-islamic-finance.html

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CIMB Beats HSBC as Top Sukuk Underwriter: Islamic Finance

CIMB helped Malaysia sell $1.25 billion of global sukuk* this year with HSBC and Barclays Capital and assisted Celcom Axiata Bhd., the nation’s second-largest mobile-phone operator, with a 1.8 billion ringgit ($575 million) bond in August^.

The bank has been hired by Dubai as lead arranger for a planned sale of $1 billion to $1.5 billion of multi-currency Islamic bonds in Malaysia, a person with knowledge of the plan, who asked not to be identified as the details are private, said last month. Badlisyah declined to comment on the matter.

A Malaysian government 10-year private-led project initiative, including a nuclear power plant and an underground rail network, will spur sales of Shariah-compliant debt next year, Kuala Lumpur-based RHB Investment Management Sdn.’s Chief Executive Officer Sharifatul Hanizah Said Ali said Dec. 15.
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*sukuk here can be defined as global debts incurred by BN administration boned by Malaysian tax payers

^ Ministry of Finance would not include this in its national debts statistic....but we still have to pay back, right?