Counting egg shells in cyberspace

There is a tax-urban legend that went around when I was still brand new to the field. It went like this – the tax authorities had the law. Tax all income. Simple enough a law, actually. Implementation of that law on the ordinary char koey teow seller though, proved to be quite the challenge. How do they tell how much the char koey teow seller was making? His clothing and business premise (being his stall) looked tattered, smelled of fried lard and gave the impression that he would probably be first in line for deserving poverty eradication charities, unbeknownst to those who judged that book by its cover, of the reality – that he probably earned way more than those starch-shirted executives sitting in air-conditioned comfort, tapping their manicured fingers on clean, ungreasy keyboards. 

An ingenius tax officer came up with a brilliant method for taxing the greasy chap at the wok. He told the man he’d get rid of his used egg shells for him. Happily, the char koey teow seller gave away what would otherwise have amounted to half an hour of garbage clearing time at the end of the day to the “good samaritan”. A few weeks later, the char koey teow seller received an assessment for tax. That assessment was calculated based on the assumption that for each plate of fried koey teow that he sells, he cracks an egg in. So, that gave the tax assessor a pretty good idea of the profits he was making….

Even among seasoned tax practitioners, kudos needs to be extended to the creativity behind that assessment, whether or not it ever truly happened. You’d just have to appreciate how that case was pretty airtight…. as I cannot even imagine how the poor man could even begin to build up the documentation that could have defended his hard-earned cash against that kind of income valuation.

That was the urban legend. Now, back to reality.

I am blogging. That’s just one in probably a million things one could do online. And undoubtedly, one can earn income online too, if one chooses to. The question then, would be, how can the tax authorities of your country (that’s the piece of land which you stand/ sit/ sleep/ shit and type on, bordered with the neighbouring sovereign nation, up to oxigen-deprived outer space) tax that?

Here’s our legislation in brief -

Subject and in accordance with this Act, a tax to be known as income tax shall be charged for each year of assessment upon the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia.

“How o’ how?” indeed.

Herd Mentality

It seems no matter what the government does now, given the sentiments, the Opposition (and the public at large) will scream “Abuse!!!”. Okay, Opposition will always do that because that’s their mission in life.

On the flipside (of the world), I once met an Italian who was absolutely head over heels in love with her country. I told her that I heard that, “Italians have to pay tax to the church” and was rebutted with a flabbergasted look of disbelief. “No! No! No!” was the answer that greeted that preposterous claim. Instead, she said that the tax forms of Italy make it easy for donations to be made to the church by putting in a compulsory 10% at the end. Okaaaaay… I suppose one man’s donation is another man’s tax.

Which brings me to this Valuecap fiasco we are currently witnessing in cyberspace (as well as in the August house). Opposition MPs, bloggers and news readers alike respond with indignant claims that their EPF savings are being abused to possibly shore up bad quality assets in the KLSE. Its all about sentiments of the times, isn’t it? But, I do agree in part about voicing out concerns over that risk.

We could subscribe to herd mentality in crying foul about this, there’s nothing wrong in that. Our psychology as a people fighting for what little crumbs left during current economic stagnation is merely a sign of the times. Or we could read an analysis made in 2003 from a learned source and decipher for ourselves the economic realities, the nature of Valuecap, the timing of this intervention and not get ahead with non-factually based criticism.

Mind you, I started out as angry and disgusted as many, for all I knew, bad things can only eventuate from anything announced or action taken by our ruling government right now… for all I knew. Having read that article though, I’m now not so sure it’s such a bad move to have EPF fund Valuecap to invest in undervalued company shares. Think of it under this scenario – you wouldn’t even think twice about depositing your money in a bank, because you think your money should be safely guaranteed. But do you even know what the bank used the deposits for? Rolling the dice with foreign exchange positions, subprime asset backing, financing crooked politicians and their satay stalls or investing in genuine money making ventures, do you even know? Or care?

My point is… if Valuecap were like any other government linked banks, which for the purpose of this comparison, it is, why are we so agitated with this and not with the even less transparent ways our deposits in banks are financing even shadier deals?  

Sorry. How has this anything to do with taxation? (besides that tiny bit referring to Italy’s religious ‘tax’). Some tax stuff for your chewing, you don’t have to agree… 

1. Valuecap and EPF are tax exempt entities.
2. As hinted by zewt, let’s not kid ourselves… compulsory retirement savings may be tomorrow’s savings, but its today’s tax. In essence, taxpayers are funding Valuecap. We just disagree on whether the funding should have been done.
3. If EPF, using your savings with them, earns interest from loans made to Valuecap, it will be returned in the form of dividends back to you. And one day, when you’re grey, old and retired, you could withdraw that amount tax free. ‘How’s that better than spending your own already-taxed take home salary on share speculation?’ is anyone’s guess.

Tax authorities hate intimacy

That’s why we keep hearing these words over and over in recently proposed legislations – “arm’s length basis”.

Its basically a concept that puts all your transactions under a microscope if you have kinship, marriage, shareholding or employment relations with another, and requires that all your transactions be duly scrutinised to see if you have provided anything extra or less (as the case may be) compared to had it been similar transactions with an unrelated person. (Okay, I apologise if you couldn’t catch a breath reading that last sentence. The accounting-hating side of my bipolar profession has been pretty dominant lately.) 

Now, for non-tax familiar people, tis’ a strange thing to be forced into keeping your loved ones at arm’s length. Having said that, there is obviously a revenue generation reason behind the whole “put a similar price on that transaction just as Divine Brown would have charged Hugh Grant”, but I’ll bore you to death if I get into that. Seriously.

And it gets even stranger when a company or person is actually sanctioned to transact at abnormal prices that are waaaaaaayyyy above market rate, like “maintenance of Terengganu exco member’s Proton Perdana’s starting floor price of RM100,000″, or waaaaaayyy below market price, like “free dental to a government official because he granted us that lucrative project so let’s call it marketing expenses”. In the eyes of income tax legislative enforcers, those are actually arm’s length and hence pass the all important tax deductibility test, notwithstanding their legality. 

Legality and tax deductibility are in entirely separate Acts altogether. Literally.

So, what’s my point? I don’t have one today. Just making an observation for ranting purposes (translation: I’ve gone nuts with mile-high paperwork on my desk). Have a good week ahead, taxpayers.

Who says there’s no tipping required in Malaysia?

Service tax verses service charge 101.

Service tax is that 5% that the restaurant will need to charge you because they earn RM3 million per year at least. That’s RM3 million including the revenue of their other branches that make up the whole franchise, not just that branch you were having your lunch or dinner at. That’s excluding hotel restaurants (and I don’t know why. I’ll tell you when or if I ever find out.) And just to be extra sure you’re required to pay this, go to the front of the restaurant. There should be a conspicuous service tax licence displayed (framed, preferably) on the wall. If there isn’t a licence displayed, tell the guy manning the register that you won’t pay the 5%.

Service charge, on the other hand, has nothing to do with tax. It’s basically a compulsory tip for service provided by the waiters. Now, this begs an input from lawyers. My layman’s view about this… plus whatever I can vaguely recall from that Contract Law subject I had to take to get my degree is this… For every contract (and yes, to purchase food and service within a restaurant denotes a contract between a restaurant and the customer), there must be an offer, followed by an acceptance of that offer. 

The prices displayed on the menus is the price which the restaurant offers the potential recipient of that product (read: both food and service, unless separately specified). If there is no indication at the point of offer that the service comes with a separate charge, it should be logical to expect that the cost of the waiter’s pay would already be imputed into the price of the food, along with other stuff like the air-conditioning, their powder room and the use of the sink and water to wash up thereafter. Of course, unless it is clearly stated on the menu or some poster on the wall as you walk into the place that the service will be separately charged at a certain price/ percentage, it should be sensible to assume that we are not and should not be paying for anything extra.

Now, the principle of legitimate expectation (that’s some legal jargon lawyers who won’t tip would use) sides with the customer if he or she chooses not to pay that compulsory tip. Because the restaurant had never explicitly indicated that such a charge will be included into the bill prior to the customer’s acceptance of that contract offer. In ‘bahasa pasar’, don’t pay the service charge. Because the menu didn’t read -

Spaggheti Marinara        $22.50 (excluding service charge of 10%)

P.S. Yes. This is my idea for cost cutting during economic stagnation and inflationary times.

My Dog Ate My Receipts

Documentation. That ‘canggih’ sounding word that forms the forefront, backside and gist of every tax advice I have ever seen or helped prepare. It’s all about documentation.

If you wanna prove that you sent your old mother to the hospital because she was having the sniffles, you’d better keep the receipt for claim of that tax deduction against your measly income. (Bad news is, the authorities can’t be bothered to give you a tax deduction for purchases of say… prescription anti-rejection drugs that you’d have to get from the pharmacy because your loved one has had an organ transplant. Those inconsiderate bastards.)

If you wanna prove that you read, you’d better keep the Borders and MPH receipts of your purchases (and it doesn’t matter if you didn’t really purchase books, as long as the receipt didn’t print “toy” as the item sold. And one day, I’ll have a piece about online reading verses hard copy tree killing evidence that I actually read, I’m sure.)

So, what happens if the flood waters in Penang/ Johor (enter desired State) washed away the shoe box in which you kept your documentary evidence? What happens if your dog ransacked your closet and shreded those flimsy-already-fading-anyway papers? What if your sick ol’ mom thought they were just rubbish and threw them out? (Obviously, those are just a few of countless ways we could lose our documentation).

Here’s what the tax authorities usually tell you to do in situations when you’ve lost your tax documentation – Make a police report.

That’s right. Go make that police report against your mother, your dog and the Almighty. They accepted one about the egg anyway, didn’t they?

Pondering…

In a battle between substance and form, which one should win?

Does one read the tax legislation for its literal meaning or its intended spirit? How does intention or the spirit of a law beat the odds stacked against it in a judiciary system where explicit evidence is everything and circumstantial notions, cast out?

Another WTF moment

This was his proposal on August 29th -

Besides factory premises, other business premises such as hotels and banks also install security control equipment. To support the efforts of companies to enhance the security of their businesses, it is proposed that Accelerated Capital Allowance on security control equipment be extended to all business premises….

This was the resultant legislation awaiting Parliament’s blessing -

These Rules shall apply to…

(b) a company incorporated under the Companies Act 1965 [Act 125] which is resident in Malaysia, in respect of capital expenditure incurred by such company in the basis period for a year of assessment from a source consisting of a business in relation to the installation of -

(i)  any security control equipment [other than the Global Positioning System (GPS) in item 10 of the Schedule for vehicle tracking] for a factory of such a company provided that such company is a company approved under the Industrial Co-ordination Act 1975 [Act 156]; or

(ii)  any Global Positioning System (GPS) for vehicle tracking for a container lorry of company bearing Carrier Licence A and for a cargo lorry of the company bearing Carrier Licence A or C issued under the Commercial Vehicles Licensing Board Act 1987 [Act 334] used for the business purpose of such company…

Need I say more? Okay, I’ll say just one more thing. The Malaysian Industrial Co-ordination Act 1975 (ICA) was introduced with the aim to maintain an orderly development and growth in the country’s manufacturing sector .

Wanna Exempt, Don’t Wanna Exempt…

For fark’s sakes, can they make up their minds already?!

There’s currently a tug of war between the policy makers and tax enforcers about the extent of the tax exemption granted to individuals with loads of money in banks. Policy makers say all interest income earned by those gazillionaires are now tax exempt. Tax enforcers say tax exemption is only applicable to fixed deposits and savings accounts. Which means what? A tax administration with no back bone will power to dictate what they wanna or don’t wanna give us those people with so much money, they wouldn’t give a shit.

Banks are already purging, no thanks to the BII virus and American sub-prime syndrome. Now, we have a half baked exemption order that’s up for imaginary interpretations because those enforcers have not an ounce of business sense to ease the current business uncertainties. Add fuel to that fire, why don’tcha? Why not? Calling it “clarification” when all it is is adding dung into an already volatile industry. Oh, go dump that stupid exemption order if you wanna be so picky about granting a freebie!