Painless Budget?

That’s what the Finance Minister called it. But was it painless? Let me count the ways…

1. Service tax on credit cards (yearly) – …. wait for it… payable upon issuance of the card! Imagine this scenario: You get an envelope in your mailbox and the letter says a bank has sent you a free for life credit card. But then, oh by the way, they’ve charged your card with RM50 because its a tax. Scenario 2: You work for a bank. You are issued a card by the bank because… well… you work for the bank. Your bank wants to ease the pain by bearing that tax for you. But then, it becomes a taxable perquisite to you and you get taxed on the freakin’ tax borne by your freakin’ employer just because the freakin’ government decided a piece of plastic has a RM50 tax! Every year!
2. RPGT – First, the Budget speech said it’s 5% on gains, to be implemented by the purchaser withholding 2% of purchase price. Then, the freakin’ Finance Bill came out and virtually said, “It’s the scaled rate that RPGT used to be at, only worse… the lowest tax ain’t 0% anymore, its 5%!” Which was why one of the Big 4 firms then said that the tax is a “knock out punch”. But then, FM2 aka Husni announced in the news that, “It’s not the scaled rate! It’s 5% flat!” So, now we have a limbo of a tax because someone got the drafting of the freakin’ law wrong. Oh yeah… one other thing… when the purchaser is in doubt on whether the seller is getting capital or revenue gain, withhold first. Let the seller go convince the government about the nature of their gain, if any.
3. Reduction in top scale individual tax from 27% to 26% – Amazingly, the speech refers to our top scale rate as the middle income group. I don’t know about you, but I feel insulted.
4. Personal relief on EPF contribution and life insurance to be increased from RM6,000 to RM7,000 – … gotta wait for this one also… BUT that RM1,000 is only applicable to premiums on deferred annuity schemes entered into after 1 January 2010. Okay, I haven’t a clue what that is… which means I have to go find out. Which makes it so “painless” a Budget for me.

No doubt there are some good news in this year’s Budget for some. I’ll get back to you on that later. Busy answering badgering calls from the credit card department.

The Opposition’s Budget

I won’t bother to analyse this point by point due to the following reasons:-

1. You can read it for yourself… it’s in plain English.
2. It’s 106 pages long (imagine the number of glasses of water the poor Finance Minister has to gulp down, not to mention while standing in Parliament and reading for a couple of hours at least!)
3. Most of it is just dissing what the current government has done.
4. It’s very “opposition”… and by that I mean if DAP (as opposed to PR, because if PAS had a part in preparing this budget, you’d… cough! Islamic incentives… cough!… know) were to helm the federal government today, their Budget will never (should never) sound like that (because they’d then be dissing their own federal government and giving more autonomy to state governments).
5. Some of their proposals feel very leftist… especially the bit about “sharing risk”, where it sounded more like,”if SMEs fail, we’ll work out a way to save them with the banks”. I’m all for giving power back to the people/ more opportunities for the smaller players kinda leftish government… but saving failing businesses is pushing it a bit too far, I think. Just a tad uncomfortable for the pro-competition-better-for-the-consumer side in me.
6. Some of the proposals are pretty radical (one, at least, is recycled from last year), so operationally, I don’t think our current institutions, like the Inland Revenue, are equipped to administer the changes proposed, let alone understand what they mean. Even if they can, I suspect the cost of changing the operational procedures and awareness campaigns will just wipe out the funds allocated to the objectives before they could even start… (I have that much confidence in our tax authorities. Sue me.)
7. I didn’t have the time to read beyond page 57.
8. I really do have work to do.
9. Even if I don’t, there’s other more interesting news to read today courtesy of a rather interesting weekend politically.
10. I’m in my lazy patch. Now, go read it for yourself!

Has anyone seen this Guideline?

I know, I know…. I haven’t been around. But I’m back. And seeing that the Budget is coming in two weeks’ time, I suppose you should be hearing more from me soon.

Anyway, I was reading this Risk Weighted Capital Adequacy Framework (a mouthful of a hint telling you the industry I work in) where it made mention of ”Guidelines for Tax Treatment of Issuance of Innovative Tier 1 Capital Instruments by Banks/Financial Institutions”.

Weird thing is… I can’t find this guideline. Anywhere.

Googled it. Nadda.

To the clued in… a little help?

The difference between us and them…

Just read this on the Singaporean Straits Times.

In the meantime, I get a reply via email from the IRB that reads like this…

I would just like to clarify my opinion re the above given this morning.

The activity of the recipient in his country is irrelevant in determining whether the income it receives is sec 4(f) income or not. Malaysia cannot / will not decide whether the activity of the recipient is a business activity as it  doesn’t  fall under the jurisdiction of ITA 1967. If the payment made by resident person is the type of  gains or profits which falls under sec 4(f) and sec 15B, then section 109F is applicable. Thus any confirmation re its activity (the NR) will be irrelevant for this purpose.

I truly regret the incorrect or misleading advice given this morning.

And THAT, ladies and gentlemen, is the difference between us and them.

Fire fighting

That’s why I’ve been absent from the blogging world. In laymen’s terms, my ‘client’ got hit with tonnes of queries and adjustments by IRB, so, I’ve been busy like shit.

Today, there’s this piece of news telling us there’s a website that monitors the use of the funds of the stimulus packages. In laymen’s terms, how our taxpayer’s money gets spent will be disclosed in this website.

I don’t know about you, but I can’t access that website. In laymen’s terms, it doesn’t exist.

At least he reset the bar…

The title of this post was supposed to be “I am impressed”. But then, it occured to me that in other countries, comprehensive information and details pertaining to Budgets are made public within 24 hours of the announcements anyway. So, for it to happen in Malaysia is merely meeting the expectations of a properly run Ministry of Finance, wouldn’t you say so?

Granted, one draft law is out – the one pertaining to the deferment of the banks having to tax their mortgage interest income when it refers to late payments by retrenched individuals (and I suspect any new laws for banks will come out at speed of light as long as the man’s in power and his brother runs a financial group).

The amazing part for this Malaysian tax practitioner (because I have never experienced this level of speed in getting information from the authorities… NEVER…) is that a whole “Garis Panduan Bajet Mini 2009″ has been issued! I got it two days after the Mini Budget announcement and granted that its seriously mini in size and scope, but for the IRB to have the details from the MOF and and to have produced 28 pages of details on a guideline dated 10 March, 2009, I am still recovering from the culture shock this morning.

That and the fact that the whole guideline’s in Malay. Not exactly my linguistic forte for speed reading, know what I mean?

The abstract art of tax consultancy

Got an email from a friend who is also in the industry, so, I thought I’d share it with you.

Firstly, my friend was also lamenting about how the Revenue authorities interprete royalty, so, I suppose he sought the help of what we call in the industry, an external tax consultant; i.e. someone from one of those accounting firms with a tax outfit.

Anyway, I suppose he asked the external consultant to help with engaging the tax officer the same way I had called an officer about the same questions last week.

After obtaining “clarification” on the matter, here’s the email that came back from the external tax consultant to my friend, his client -

Dear [client],

Finally, we managed to discuss with the tax official. Based on our telephone conversation, the tax official explained that the guarantee for the result of services is one of the criteria in determining royalty. From the tax official’s perspective, basically, there is no guarantee for the result of service if the services are regarded as royalty, however, this does not mean that the provision of services without guarantee of services will be regarded as royalty.

Regards.

 

I can picture your expressions reading that. Your eyes are squinting, your brow creasing with vertical wrinkles and your jaw drops a notch if your lips aren’t already unconsciously mouthing, “What in the world…?”

You gotta admire his shamelessness

This is a short article, but for those whom have been following it (amongst many battles we’re witnessing throughout our beloved nation), you’d have read it. Just for kicks, here’s an extracted quote from the fella, justifying his non-declaration of the car and driver (amongst many other benefits) he received from (who are we kidding here?) his company -

“If I paid tax on the car, it would mean a double payment to the IRB because PNSB was also paying tax on it.”

I think I’ll just go and revise my tax returns in the last decade or so (till March 8, 2008) to reflect that reasoning and get some refund from the IRB. Wanna join me?

Here’s also something I wish our journalists could cover: Under such blatant tax evasion cases, let us count the ways our internal revenue could be increased to aid the poor during such economic turmoil -

Penalty for…

• Failure to notify chargeability – RM5,000
• For offences involving ommissions from or understatements in the Return Form not supported by accounts due to negligence – 60% of tax payable (+ 10% for every repeated offence)
• For offences involving ommissions from or understatements in the Return Form not supported by accounts due to wilful default - 75% of tax payable (+ 10% for every repeated offence)
• For fraud offences which involve understatements either in the Return Form or accounts of a deliberate nature – 100% of tax payable
• Deliberate and persistent understatements - Not less than 100% of tax payable

Now let’s throw in some that PNSB can contribute to our nation’s bailout plans…

• Failure to comply with the rules on tax deduction for employees – RM1,000 per offence (now, count the number of months per year for each year the company has existed, multiply that by the number of employees and/ or Khir Toyo and gang of benefit recipients to have a gauge)

Not enough? Try transfer pricing adjustments (cough! Mecca land deal cough!), tax auditors. Come on! These are low hanging fruits for your picking!

Technically, they’re mad!

And that’s my cue for saying I’m gonna get a bit technical for this post. But for those with slightly less tax background, a… well, bit of background.

Payments made to non-residents are subject to withholding tax if, amongst others that I won’t regurgitate here, those are royalty payments.

Royalty is defined in the legislation to include -

(a) any sums paid as consideration for the use of, or right to use -

(i) copyrights, artistic or scientific works, patents, designs or models, plans, secret processes or formulae, trademarks, or tapes for radio or television broadcasting, motion picture films, films or video tapes or other means of reproduction where such films or tapes have been or are to be used or reproduced in Malaysia or other like property or rights;

(ii) know-how or information concerning technical industrial, commercial or scientific knowledge, experience or skill;

(b) income derived from the alienation of any property, know-how or information mentioned in paragraph (a) of this definition;

I took the trouble to reproduce the definition because I’d like anybody with any legal background or even the layman on the street to try and find any remote link that payment for use of a foreign phone line would have to royalty. Anybody? Well, those idiots seem to see a link. If I wasn’t clear there, let me spell it out: They tell me payment for use of a foreign phone line is royalty.

Just so I could be sure they weren’t high on some sort of substance of their technical prowess, I ventured another question – What about payment for off-the-shelf software like Microsoft Office?

Wanna know what they told me? “Itu… kalau tak customize, bukan royalti, sebab itu sell to public… Tapi kalau you all buat customization, yang tu royaltilah…”

Now, do you agree with the title of my post?

New skill required: Telepathy

My letter to them: Sometime before January 2007 (I write too many letters to the authorities in my line of work).

Their reply: 6 February 2009.

And just so I can spend a day digging through the warehouse, the entire body of their letter states -

Dimaklumkan bahawa keputusan oleh Perbendaharaan, Kementerian Kewangan melalui surat bertarikh 30 Januari 2007 adalah tidak meluluskan permohonan tuan dan muktamad.

Sekian, terima kasih.

It’s quite amazing, the amount of information I can actually deduce from the above junk. In one paragraph, I think they meant to say that -

1. I made some sort of application way back then…
2. They probably forwarded the decision making task to the MOF
3. The MOF made a decision about my application more than 2 years ago
4. The MOF wrote back to them about their decision more than 2 years ago
5. They decided to write back to me about MOF’s decision more than 2 years later
6. And I’m supposed to know what the decision pertains to…

Know anybody giving classes on telepathy? It’s a new skill I’ll need in my profession.