Theme of My Week: Lost & Found

Its not all good news. I found my legalised-drug vessel a.k.a. coffee mug. But I lost my parking swipe card. Just to add to my “excitement” for being in an office which is virtually deserted, I can’t make a report about it and pay my RM100 fine till next Monday.

Which brings me to a tax parallel. Fines. Or what was proposed in Budget 2009, a “goodie” on “penalty”. The proposal was that if the tax payer found out that their tax returns which they submitted to the Inland Revenue was not entirely correct and the error was discovered within 6 months from the submission, the tax authorities won’t penalise the tax payer if they correct that mistake within that 6 months. Woopeedoo, right? (I chose to intentionally not end this paragraph because knowing our previous Finance Minister who proposed this “goodie” in his Budget, you know there’s definitely something else….) Here’s the something else. He won’t penalise us for submitting a “wrong return”, but he’ll penalise you for “late payment of tax”. Because you told the tax authority you made a mistake 6 months after the deadline for submission. And they’ll only accept a correction of that error if its a correction to increase your tax, not to decrease it. (Yes. At this point, a collective, “What the?” is allowed.)

Now, the clincher. In the past, the Inland Revenue would impose an automatic 15% penalty on any additional tax if you voluntarily disclose that you made a mistake in your return within a year from the initial submission of that tax return. Now, anyone wanna guess what the new “late payment” penalty will be?

A hint: Our former Finance Minister no have mathematical common sense.

Hamster on the spinning wheel

Yeah. Been THAT busy. So, apologies to anybody who may have been anticipating any tax posts the past two days. There isn’t gonna be any. Besides, they lost my coffee mug at work. So, am severely withdrawing, pissed and not in the mood to talk tax.

See you Monday.

Parallel smarty pants

And to think it crossed my mind that I might run out of current issues to equate to tax. Hah!

Found this article that I’ll reproduce the parts relating -

THE Selangor Islamic Religious Department (Jais) has issued a stern warning against any party protesting the use of loudspeakers for the azan (call to prayer) at mosques in the state, reported Utusan Malaysia.

Jais director Datuk Mohammed Khusrin Munawi stressed that the azan was compulsory in Islam and it had to be done without any obstruction.

He has directed nazir (mosque official) and mosque committees in Selangor to continue with the practice of using loudspeakers.

“With regards to azan, we cannot compromise. It is compulsory.

“I hope the nazir at the mosques will continue with the practice without any obstruction,” he said.

Recently, the management of the mosque at Al-Ehsan Bandar Kinrara, Puchong, stopped using loudspeakers for the morning sermons, a week after 189 non-Muslim residents sent a protest petition.

Now, Taxy Driver, how in the world do you plan to draw parallels between that and the taxation world? Alright, for those of you who may not know the truth behind the crap they’re continuing to spin in the local dailies, go here and read your way up to Part 7. That blogger has done proper research and presented real evidence as to the true goings on behind the azan issue, as it is now infamously called.

I’ll just get to my point sometime this century by summarising that the article above (that nonsense referring to warnings against azan protestors) is either - 

1. Totally wrapped up in a bubble that never was when everyone else has moved on to the true issue of “why lock up the bystanding MP for being carbon copied the freaking didn’t even ask for what you said they asked for!?!?”; or 
2. Trying to resusitate a dead non-issue for goodness knows what political advantage they actually see in making stupid statements like those; or
3. Trying to fill up news space and by doing that, Mr. Editor, you’re one of the root causes of the whole mess compounding the mass distribution of unsubstantiated lies, built on hearsay and lowly gossip.

Okay. Sorry. My point. Which is now totally lost in that jumble o’ ramble.

(Slow)

(Deep)

(Breaths)

Right. Parallels with tax.

When evidence grows and actually proves a certain case or point, certain parties in the taxation world still refuse to admit defeat. Why? Because they have the entire nation’s coffers financed by our tax ringgits to pay for their dragging us through 20 years of court and by then, we’d have died of old age or declared bankruptcy because we couldn’t afford to pay our legal fees.

Fact: Case laws have proven over and over that many a tax issue actually sides with the taxpayer.

Fact: Even so, the tax authorities choose either to ignore them and drag us to court over the same issue, or make up their own perverted interpretations of those cases and say its not applicable to us and drag us to court over the same issue, or plunk in some obscure unrelated section and say that THAT part of the Act should’ve been the tipping point which would have won them the previous case and drag us to court over the same issue.

Fact: Their KPIs are tagged to how much money the Board collects and retains, not the proper administration of cases and certainly not the saving of wastage of tax revenue by relenting to cases precedent.

And just like that make-an-issue-outta-thin-air-again Jais Director, the tax authorities are also starting to create disturbing new trends in deciding that they should be the makers of law-out-of-thin-air, instead of being guided by decisions of the court. Sigh! Why the hell not? The whole Law part of our Cabinet is walking around headless anyway.

The tax profession is the illegitimate offspring of two opposing professional vocations

There used to be this understanding among accounting grads that lawyers couldn’t count to save their lives. Similarly, law grads think accountants are hopeless in interpreting the never-let-you-breathe-paragraphs of legal clauses and legislations. So, you can appreciate the confused creature that spawned of the pairing between those polarized professions.

Take it from me, we may be confused, but we be understanding and appreciative of lesser mortals. We’d have no qualms explaining the oh-so-obvious-you-idiot-accounting entries to non-accounting clients or colleagues. Similarly, we would extend the same kindness in summarising say, the following legal mouthful…

Section 45A

Where –

(a) the husband has no source of income;

(b) the husband has no total income which can be aggregated with that of his wife; or

(c) an election has been made by the husband under paragraph 45(2)(b),

there shall be allowed to the wife, for a year of assessment, in addition to the allowances or deductions (if any) to that wife under sections 46, 48 and 49, a deduction of three thousand ringgit for the husband and a further three thousand five hundred ringgit if he is a disabled person:

Provided that this section shall only apply to one wife

to one-liners the layman can easily understand… Section 45A tells us: “If he ain’t earnin’, its more tax efficient to maim him.”

See how we tax lawcountants make the law work for your bank account?

We still have two Finance Ministers and zero Law Minister

Really puts in perspective our priority on the rule of law verses the nation’s money making machinery, doesn’t it?

Anyways, I apologise if I have been a wee bit too academic in my posts. Sometimes I forget. Doing that mostly means I end up talking to myself. I’ll try to blog simpler and more man-on-the-street tax stuff… and save those mind boggling abstracts to fill up my day job reports when I run outta material to dazzle the boss.

Tomorrow, I won’t be anywhere near a computer, so I’m posting this early. Just wanted to shout out my new page. Go peep if you haven’t already.

The Thin Cap Big Foot

Large footprints in the mud does not, a Big Foot make. And no amount of spin the local dailies put us through should ever make us swallow that kinda trashy reporting. 

Similarly, just because the whole world is currently saying that Malaysia is introducing “thin cap” legislation into our tax laws, doesn’t make it so either.

“What is the purpose of a thin cap rule?”, you should ask yourselves. It is to place a rule so that companies do not end up being thinly capitalized. That is the purpose, hence the name. Comprande?

So, when a legislation Bill comes out stating that the Inland Revenue will disallow tax deduction for finance charges and interest of inter-company loans which are excessive compared to its fixed capital, we suddenly hear those two words circling like vultures around the Tax Field of Dead Terminologies… “Thin Cap! Thin Cap! Thin Cap!”

But is it really? If you say yes, you’re not really thinking properly there, my fellow zombies. But its okay, cause its Friday anyways, so I’ll just spoon-feed ya’ll with this – ever wondered WHY our “thin cap” rule is so weird and restricted? And please don’t say, “Buatan Malaysia mah!”

You know what I think? I think its merely the casting of a wider anti-avoidance net than anything else. “What about the interest-restriction-like bit there?” you could ask. But then you would be answering your own question, wouldn’t you? So, repeat after me: There are no yetis in Malaysia. They’re probably just sunbears. 

I so need this weekend.

If he has an initiative bone in his gargantuan frame…

I’m just gonna recycle this question, with the appropriate amendments because I’m just too darn busy to think up anything intelligent to post today. So… gimme your thoughts on this:-

Should our new Finance Minister introduce explosive (just couldn’t resist that, could you?) initiatives to our purging economy by tabling a new Budget 2009? 

 

P.S. The fella is Finance Minister. His brother runs a bank. Conflict of interest? Oh, I can hear Nazir now, “What financial crisis?”

Tax authorities have a new boss

Boom!

Who’s the clueless one here?

In the 5 odd years we have had a particular Finance Minister, its safe to say that he has managed to single-handedly… or in a few swipes of the same hand, proposed measures which tore a gaping hole in the taxation continuum to spew forth a twisted existence now known as “The fella is truly clueless about what he’s done… or is he hiding cronyism under that pile of Budget proposals?”. 

For non-science fiction buffs, I’ll go slow. The last few years saw a reduction of tax rate for small and medium sized companies, or enterprises, to 20%. Then, there was that big bang that exploded the size of those SMEs from 250 grand capital to 2.5 million paid up. After that, the tax rates came tumbling down, for corporations; 28%, to 27%, 26% and finally settling at 25% (All that while until most recently, individuals’ highest tax bracket remained at the global average of 28%). One would try to give him some credit that he actually empathized with those who complained that the cost of business was too high, and that was why he graced us with the lowering of companies’ income tax. But, to be honest, its really all about Singapore. They lower their tax, he follows suit. Unoriginal, but serves his purpose, I suppose.

Then, he stole another idea from Singapore. The single tier dividend system.

Now, in case many of you don’t see through this, introduction of a single tier system with those kinda tax rate differences is like trying to squeeze a piece of square shaped puzzle into a round cavity… the puzzle would still be assembled, but how closely we actually look at it decides whether we perceive it to be truly complete. Those not looking close enough, might just patch up any residual cavities in those tax laws, with the trusty 140 or that spanking new 140A.

Tax practitioners, a case study. Here’s a blatant, full frontal scheme for your assessment. Do you think Sections 140 or 140A can put a stop to this?

1. Insanely highly paid man quits his job (yes, quitting one’s job does bring about financial benefits, as you will see);
2. He forms a company with a measly paid up capital
3. His company signs a consultancy/ agency agreement with his former employer
4. His company gets paid a fee for the same service he would have given his former employer, but with more glam because now, he has his own business card and logo.
5. His company gets to tax deduct from that income; the cost of his car, his holiday in Taiwan, his meals and medical bills, his wife’s maternity expenses… and the list goes on and on.
6. His company pays 20% tax on what’s left.
7. His company declares a tax exempt dividend to him.
8. He puts that money in the bank, and earns obscene interest income, tax free.

Hmmm… clueless? Or clever cronyism? Many layers, that man has.

P.S. Sorry, Taxing Time. Changed the whole post, would’ve made your comment out of context. So, had to remove it. Don’t let that stop you from refilling my comment box. *grin*

What the ISA and some tax legislations have in common

I won’t go as far as to equate the ISA to tax legislations, but its pretty darn close. The nature of our nation’s lawmaking doesn’t seem to place priority on the what if’s except for “what if someone subjected to the law were to try to outmaneuver the law”.

Parliament in the past, and probably still do in the now, seem to have this habit of accepting promises of the proposing party (because they probably swore on their *removed due to religious sensitivity*), that if a certain Minister or agency within government were to be given discretionary power to widen the law net based on their subjective evaluation of the facts, that THAT power will not be abused. This effectively places that someone or a group of people above that law, however much cosmetic anti-abuse provisions are put in place to defuse such a possibility.

Okay, how is this even remotely related to tax, I hear you ask. This is a tax blog, so please don’t misinterprete the above paragraphs as timely ISA-bashing, although I wouldn’t recommend that you discount that possibility either. My case in point is the Service Tax Act 1975, Part IX Regulations, specifically Section 41 (which makes up that whole Part anyway). I won’t bore you by quoting that entire page long section, but generally, that Part of the Act basically confers the power to prescribe and regulate the Regulations to the Minister. Tax practitioners will know that the Regulations is the humungous part of the Act that determines which kinda stuff is subjected to service tax. For non-practitioners, it’s tax jargon for Minister saying,”tax it because I said so” the only part that matters.

Now, why is that wrong? Short answer would be: Sounds very ISA-ish, doesn’t it? No? Of course, the law doesn’t extend to an extendable-to-two-by-two-years (read: indefinite) stay at Kamunting at the whim and fancy of a particular Minister. But it’s almost there, don’t you see? 

There’s an obvious reason why we need so many MPs in the Dewan Rakyat. All potential legislation must be debated, so that the people get to have their say on how that new law is to impact them. If lawmaking were to be passed into the hands of one particular person, what in hell do we need to cast our votes for every 4 years?! Why in the name of all my tax ringgits are all the MPs earning RM17,000 per month sitting in that roof-leaking building in the first place?! 

Alright. Calm down. Here are my reasons, rationally. If you happen to end up with someone dumb for a Minister, however sincerely the previous parliamentarians wanted to speed up lawmaking in the past, in Malaysia ïn extreme cases, citizens get locked up. In tax cases, we effectively give our beloved Minister the license to screw with our lives by extending the Regulations to subjective services like “consultancy” or “management”. Floodgates open and the enforcement authorities have a hunky dory time defining those to the point of gluttony!

Sideline swipe: Our elected lawmakers took a trip to Taiwan so that they can “debate” the Budget better. Why the need now? You’ve already taichi-ed your job to Ministers anyway.