Showing posts with label Tax Shack. Show all posts
Showing posts with label Tax Shack. Show all posts

Friday, 9 April 2010

GST - yes no yes no yes yes yes no!

16th June 2009 – The Second Finance Minister announced that govt has no plans to implement GST in the near future.

24th Nov 2009 – Prime Minister announced
GST bill to be tabled in Parliament.

11th Mar 2010 – Second Finance Minister
dismisses speculation that GST will be called off.

8th Apr 2010 – The same Second Finance Minister who dismisses the above speculation announced that the
GST will be delayed beyond 2011.

The trend seems to be this… whenever they deny something, it always turn out to be true. Remember the no-election and bam… election was announced. It’s amazing how some people still trust them…

I guess it’s good news. But……. How the hell am I supposed to tell this to my big boss in London after being so convincing just a few weeks ago that it will be implemented? There goes my credibility… thanks to…

1 year ago…
Consider this

2 years ago…
When you think you’re thinking the right thingA different kind of “doing dutch”

Wednesday, 7 April 2010

Need help to file your tax return?

Folks, it’s time to file your tax return. I have done mine and geeee… with the amount of taxes I paid, I think I contributed to a metal door or two of the submarine!

Anyway, you should be going yours too. Need any help? Individual tax… corporate tax… drop me a line… I am sure the regular readers will know my credentials…

I may charge though… hehe…

Sunday, 14 March 2010

I never said GST is bad

I think there is a need to make this point clear. I have never said GST itself is bad. It is an efficient tax collection mechanism, one that ensures an equal spread of tax burden. Just like how some readers have highlighted, GST is currently functioning in many countries. It would appear that it has a proven track record and hence, we shouldn’t be complaining about GST.

The above are all true, I wouldn’t disagree with them. In fact, I would even say that GST is good.


Just like a friend of mine said… GST is good in “chaotic and racist countries” like UK, Australia, Singapore, etc… but for a “beautiful” country like Malaysia, GST is no good.

Consider this… is democracy good? It certainly is… but is democracy in Malaysia good? I hope you get my drift.

For a start, it is claimed that only 15% of Malaysians are tax payers. The rest are either retired, which means they enjoy tax exemption, or their income are below the tax paying range. When GST comes into the party, everyone will have to pay tax. Is GST good in this situation? It is good because it spreads out the tax collection net and increase govt revenue, but it’s bad because a lot of people who don’t really need to pay tax will now have to pay tax.

Certainly; more tax revenue collection for the govt under a normal situation, is a good thing. It means the govt have more money for development of the country. But for a beautiful country like Malaysia… do you think they will use the money to develop the country and improve things… or will they use the money pay commission for buying submarines that can’t dive?

Right now, some of you might be thinking… GST, proposed at 4% is supposed to replace sales and service tax of 10% / 5%, surely such a reduction in rate will benefit us…!

I am not going to go into the detail mechanics on how GST, despite only at 4% will still result in us having to pay more tax. The bottom line is, govt is going to collect an additional RM1b from GST. Please note the keyword “additional”. I am not going to elaborate further.

Next, GST will result in additional cost for businesses. This happen in all GST/VAT countries. As to why companies will incur additional costs, I have already blogged extensively about it.

In other GST/VAT countries, there is strict enforcement to ensure that additional costs arising from GST will not be cascaded to consumers. If they find any companies cascading such costs to consumers, these companies will be in trouble.

Now, for a beautiful country like Malaysia with their very civic minded businessmen, do you think companies will refrain from cascading GST costs to consumers? And, do you think our super efficient law enforcers will ensure that consumers’ interest will be protected?

Last but not least, we are talking about a beautiful and efficient country like Malaysia trying to kick-start a very complicated and sophisticated tax regime. The last time something like this was done was the implementation of self-assessment for companies. It was a huge mess. Till today, there are still some grey areas that are not fully addressed. Will the implementation of GST be properly done? Only God knows.

There are many more things that I can write about. But I am sure you already know what I am trying to get at. Besides, I am tired of hitting the same nail again and again.

So just let me reiterate… GST is not a bad thing. It’s a good tax regime, designed with an effective and efficient tax model. But when mix GST with Malaysia, that’s when the equation takes a whole new dimension.

2 years ago…
The conversation with the driver

3 years ago… A very misleading document

Tuesday, 2 March 2010

The reality of GST

In the past weeks, I have been trying to explain GST to a lot of people; ranging from acquaintances to friends to colleagues to business heads. I ended up with a common conclusion… it is very difficult to get these people to understand the technicality of GST.

I suppose I should be glad. If everyone can comprehend the topic easily, people like us will be out of job…

Anyway, I have tried to explain one very important component of GST, i.e. input tax. I even tried to
sexitised the topic, but people only got the sex part, not the concept. Let me tell you, it is an element that will impact us all.

Right… let’s not get technical. The thing is, input tax recovery rate will impact costs composition of companies. It means, the profit of companies will be affected. But do you think companies will allow their profit to be impacted?

All the best tax brains in the country have been hired by big companies to ensure that these companies will not incur additional cost due to non-recovery of input tax. They are screaming to the relevant government agencies, that they want full recovery rate. And behind the scene, they are plotting, that if there is no full recovery, any additional cost will be passed on to consumers.

It simply means… prices will increase…

In consultations with the govt authorities, agencies or discussions in industry associations, I have heard how these people refer to companies as “we” / “I”, saying things like… “I don’t want to incur out of pocket costs”… “We will be suffering if we don’t get this through”… and the ultimate…

“If we don’t get it, we will just pass the cost to customers. We have no choice”

Isn’t it amazing (and sad), that humans can be so focus when they have been “paid” and forget that they too, are part of the community. They, their families, their friends… are the “customers” they are referring too. But they can’t see that far, they only see the salary and fees that the companies pay them.

1 year ago…
How tasty are your nasi lemaks?Behind the economic scene

2 years ago…
London cooking adventure

Wednesday, 13 January 2010

GST - Explaining input-tax with sex, blowjobs and handjobs

Internet has been down at home for a few days so I am glad that I finally get to post this up after cracking my head thinking about the best possible way to explain it. I am sure the title got your attention already…

Anyway, is this your current understanding on GST…?

Manufacturer sells goods to distributor, charges 4% GST and pay to govt. Distributor sells goods to wholesaler, charges 4% GST and pay to govt. Wholesaler sells goods to retailer, charges 4% GST and pay to govt. Retailer sells goods to consumers, charges another 4% GST and pay to govt. Hence, there is a compounding effect.

If that is your current understanding, please be informed that your understanding is wrong.

There will not be any compounding effect due to this component in GST which I have mentioned earlier, known as Input Tax Credit (“ITC”). It works like this…

Manufacturer sells goods to distributor for RM100, charges RM4 GST and pay to govt --- correct.

Distributor sells goods to wholesaler for RM200, charges RM8 GST. However, distributor does not pay RM8 to the govt. The RM4 GST he suffered when he purchased the goods from the manufacturer is known as “Input Tax”, and is allowed as a refund, hence known as ITC.

The amount of GST payable to the govt by the distributor is the amount of GST collected from the wholesaler less the GST suffered when he purchased the goods from the manufacturer. The amount is RM4 (i.e. RM8 – RM4).

There on, wholesaler sells goods to retailer for RM300, charges RM12 GST but only pay RM4 (RM12 – RM8) to the govt.

Retailer then sells goods to consumers for RM400, charges RM16 GST but only pay RM4 (RM16 – RM12) to the govt.

If you are able to understand the above, you will realise that parties in the supply chain will not suffer any tax at all. The ultimate payer of GST (RM16 in the above scenario) is consumer, i.e. us.

Yes, I know it’s confusing and complicated. Hence, I have finally thought of a very sexciting way of explaining it. But before you go on, I urge you to read the
3 basic points of GST which I have written earlier.

Consider this scenario… there is a prostitute called Ms Prost and she provides 3 types of services. Her services are the 3 elements of GST I mentioned earlier. Ms Prost’s services are:-

Full sexual intercourse --- taxable supply
Blowjobs --- exempt supply
Handjobs --- zero-rated supply

Provision of sexual intercourse as taxable supply
Let’s say Ms Prost charged $500 for a session, her client paid her $500 plus GST of $20 (assume GSt rate is 4%). In providing this service, Ms Prost used a condom and she paid for the hotel room. Her total condom and hotel cost was $150. Hence, she has suffered GST of $6. This GST of $6 that Ms Prost suffered is her ITC and is available as a refund.

The amount of GST Ms Prost remitted to the govt is $20 - $6 = $14. In a taxable supply, the consumers suffer the GST.

Provision of blowjobs as exempt supply
Poles getting blown by Ms Prost will only have to pay blowjob fees. There will not be any GST because blowjob is an exempt supply, i.e. exempt from GST. In an exempt supply, ITC is not allowed. Let’s say Ms Prost bought tissue to wipe her mouth and antiseptic gargle and clean her mouth costing $50 and paid GST of $2. That $2 will not be available as a refund.

Therefore, in an exempt supply, the consumer will not suffer GST. It’s the layer just before the exempt supply that will suffer GST. In Ms Prost case, what do you think she will do? Yes, she will just charge extra $2 in blowing the poles. Now think of what corporations in Malaysia will do in relation to the so called “exempt supplies”.

Provision of handjobs as zero-rated supply
Ms Prost charged a pole $100 for pumping him till lotion cum. GST is levied but the rate is 0%. In effect, no GST is paid by the pole. In a zero-rated supply though, ITC is allowed. Since Ms Prost used hand-cream to make her hands soft and KY jelly to lubricate the pole during handjobs costing $25 and suffered GST of $1, she claim a refund of $1 from the govt.

Therefore, in a zero-rated supply situation, the GST mechanism disappears. No one pays GST. Essential goods such as nasi-lemak, char-kuey-teow, bak-kut-teh foodstuff is a zero-rated supply.

You might ask… what about the lingerie that Ms Prost wear, the make-up, the perfume and other costs that she incurred and suffered GST and these costs are related to her 3 superb business lines? Well, apportionment will have to be done to determine the appropriate amount of ITC.

I hope you now have a better understanding of ITC and how it exists in a blowjobs and handjobs…I mean taxable supplies, exempt supplies and zero-rated supplies.

2 years ago…
I am off

Monday, 4 January 2010

GST – knowing the 3 basics

I have really been getting quite a number of mails asking me about GST. Let me reiterate, I am not a GST expert. In fact, no one in this country can be considered an expert since it has never been done in this country before. Even the top tax consultants in the big consultancy firms have to import expertise from Singapore and Australia to assist them in providing consultancy services.

Hence, what I am sharing is just what I know and what I think you should know in preparation for the imminent.

A mail from GanKC asked me “Zewt, what is the difference between exempt and zero-rated? Isn’t that the same thing?”

Good question!

Like I said, to talk entirely about GST is going to take ages. So let’s just start with the basics. In understanding GST, one has to know that GST is segregated into 3 supplies.

Taxable supplies --- as the name suggests, this comprises of goods and services which will be taxed at the prevailing GST rate.

Exempt supplies --- again, as the name suggests, this comprises of goods and services which will not be subject to GST. This should include essential goods such as nasi-lemak, char-kuey-teow rice, sugar and salt.

Zero-rated supplies --- now, this is the tricky one. This actually comprises of goods and services which are taxable, i.e. subject to GST… but… the rate of GST is 0%…

Isn’t exempt and zero rated the same as what GanKC asked? The answer is of course… yes and no.

Yes to the consumer as he/she will not be paying GST.

No to the trader/vendor due to this important element in GST… known as “Input Tax Credit”.

What is Input Tax Credit? Well, the title of this post is “knowing the 3 basics”. Input Tax Credit is no basic. It’s rather complicated. No worries, I will tell you more about it and how it will affect you later.

For now, I hope you that you learned the 3 basic points of GST as mentioned above.

Monday, 21 December 2009

GST – the compelling reason

If I were to tell you that Malaysia desperately needs GST, what would be your reaction? Would you think that it’s because our country needs the money? Perhaps… but there is a more compelling reason…

In order to dwell into this notion, we need to digress a little… to this thing called “credit rating”.

Do you know that each of us have our very own credit rating? When we apply for loans, mortgages or credit cards, the banks will approve or reject our application based on our credit rating. It basically measures whether one is worthy to be give a loan or otherwise.

Besides individuals like you and me, companies also have their own credit rating. When companies apply for loan, their credit rating will be assessed, just like individuals.

Now, do you know that a country also has a credit rating? It is known as the “Sovereign Rating”. Essentially, it determines whether a country will be able to borrow from others. The poorer a country’s Sovereign Rating, the more difficult a country will be able to borrow from others.

Do you still remember when I blogged about the
2010 National Budget where I mentioned that if Malaysia is a company, it will be a company which has been running on losses for quite a number of years running due to continuous budget deficit situation? That is to say, this company called Malaysia has been borrowing in order to keep going. And to continue to borrow when you have been borrowing for a long time, a country needs a strong Sovereign Rating.

Here lies the problem. With the country continues to run on a high budget deficit situation (i.e. loss), the world governing authorities have “heavily hinted” (actually, I would prefer to use the word “threaten”) to downgrade our country’s Sovereign Rating.

My friends… this is no laughing matter. I can't even think of words to describe the magnitude of this, if it happens. I am sure all of you, in your own intellectual ways, will piece together the consequences, if it happens.

And so, in order for a country to enhance (in our case --- to preserve) one’s Sovereign Rating, a broad-based consumption tax mechanism has to be put in place. I have to be honest here, I am actually not sure if this is a prescribed rule or a directive from the world governing authorities. One thing for sure, this is where GST comes in.

Trust me, if you are a Malaysian, you do not want our country’s Sovereign Rating to be downgraded. Don’t get me wrong, I am not supporting GST. Definitely not, particularly when we all know the level of efficiency on how the money collected will be spent.

I am just saying that we are where we are today because we are in a very screwed-up situation. And why are we in this screwed-up situation? Well…
sam jiu lah…

1 year ago…
The reality of reality shows

2 years ago…
The fear evolutionDo you believe in miracle?Marriage brownies points

Sunday, 13 December 2009

Answer to GST snippet and how it affects you

In the snippet, I asked this question…

“Apart from the govt, there is a group of people who is smiling in the sleep and quietly celebrating because GST is to be implemented. Who do you think this group of people is?”

Thank you for all your answers and kudos to ThomasChan for getting it right. The group of people that I am referring to is the elite bunch of people, the professional tax consultants from the professional firms. I know some of them, and they are really smiling in their sleep.

90% or more of companies in Malaysia; be it big, medium or small will need their service in the next few months. They will be rendering their professional advice in terms of initiation, preparation, implementation and setting up of processes to manage the compliance requirement and payment.

Another group of people who will benefit from the introduction of GST is the IT industry. There will be a lot of system enhancements, translates to a lot of business. But I think this group of people is not quite aware of it yet.

These people are going to make 10s or even 100s of millions in consultancy fees. Trust me when I say they are now smiling in their sleep. Of course, only the top partners will make the big bucks. Those slaves doing the ground work at the bottom will just earn knowledge and lots of sleepless nights.

But anyway, why did I say in the title and it will affect you? Do you think it will affect you?

When 10s or 100s of millions are going to be earned by these consultants, it also means that 10s and 100s of millions will be spent by companies in Malaysia. What does that tell you? Get the drift yet?

10s and 100s of millions being spent means there is additional cost to businesses in Malaysia. Huge additional cost! Now, what usually happens when companies or even small time traders incur additional cost? Think increase-in-price-of-petrol.

Yes… these 10s and 100s of millions of additional costs are going to be passed down to consumers, i.e. you, me, your uncle, your boyfriend, your girlfriend’s one night stand partner, your girlfriend’s one night stand partner’s dog’s mating partner’s owner, etc.

Some of you mentioned that retailers are going to benefit from GST. That is not true is GST is effectively implemented. They can merely pass the cost to the consumers without raking in more revenue and remit the collected GST to the govt due to enticing need to claim input tax recovery (I shall talk more about this later).

Anyway… prices are going to increase. And this is why I said that if you are only worrying about that additional % of GST that you need to pay, you are wrong. And let me assure you, these 10s and 100s millions of additional cost is not the end of it. There are more complicated issues in the GST that will affect you, me, your boyfriend; your girlfriend’s one night… well, I am sure you know what I mean…

1 year ago…
A new criterion

2 years ago…
Will this point hit you?

Friday, 11 December 2009

GST snippet

It is a very complicated taxation mechanism. To explain it would take numerous write-ups, and I might just end up confusing you even more. I received a few e-mails asking me about it and I will try my best to explain it in the simplest form possible. But I have to let you know that I am no GST expert.

Since weekend is on the way, let’s leave GST talk for next week. However, let me leave you with a teaser…

Apart from the govt, there is a group of people who is smiling in the sleep and quietly celebrating because GST is to be implemented. Who do you think this group of people is?

On a related note, I was in a consultation group with a top govt agency this morning regarding GST where a lot of P&C information was disclosed and discussed. Sorry that I can’t share with you, it’s P&C.
Anti-Zewt claimed that I was only boasting when I claimed I have access to such information and he/she knew such information too. Perhaps anti-Zewt can share what’s in that consultation… can he/she?

2 years ago…
Light Monday readMy very own encounterWhy the fortune teller failed to tell my fortune

Tuesday, 24 November 2009

Another typical u-turn

On 16th June 2009, the Second Finance Minister announced that the govt has no plans to implement the Goods and Services Tax ("GST") in the near future.

Today, 24th November 2009, our Prime Minister cum Finance Minister announced that the GST bill will be tabled in Parliament. I guess we all know what is the meaning of "near future" in the eyes of our govt.

While Beyonce's concert has gone, GST is coming. It is an effective tax collection mechanism that will impact every person in this country. Well, what to do? Govt is in need of money to spend on computers which cost RM40,000+ per unit to develop this country.

Your char-kuey-teow, bak-kut-teh and nasi-lemak are going to be more expensive I can assure you. But it's ok, I am sure they are still as tasty.

Tuesday, 3 November 2009

Budget 2010

A quick browse around the domestic blogosphere and I noticed that many have already voiced their displeasure regarding the RM50 service tax imposed on each credit/charge card announced during the National Budget.

And being selfish people where we are only concern about ourselves, that’s perfectly understandable. Don’t get me wrong, I am not saying that we should pay RM50 for having a piece of plastic. What I am saying is that we should look at the budget from a different perspective.

Do you know that the country will again be in budget deficit position? “Budget deficit”, sounds too economic for you to understand? Let me zewtlified it for you…

If Malaysia is a company, it means it is making loss. Malaysia has been in budget deficit for (I think) more than a dozen of years with deficit expected to be 5.6% for 2010. That means, “Malaysia Sdn Bhd” has been making loss for the last 12 years or more. What do you think will happen to a company that keep making losses?

By the way, our neighbour down south was in budget surplus position (i.e. making profit) a few years running till 2007. And this is part of the reason why SGD1 = RM2.5.

But then again, we Malaysians don’t really care about the big things. It’s too intellectually challenging for us. We are only concern about whether we can get good food at night and the RM50 we need to pay for a piece of plastic which allows us to buy things we don’t need to impress people we don’t like.

So let’s just keep the simple stuff…

Yes, the reduction of top individual tax rate from 27% to 26% will only benefit those having chargeable income above RM100,000. “Chargeable income” above RM100,000 means your annual salary must be around RM130,000 before you benefit from this. And yes, it’s only 1%.

The govt categorised those benefiting from this reduction as “mid income group”. If you are not earning above RM130,000 a year, i.e. not “mid” income group, tough luck. But can you imagine those earning millions! They will be laughing by now. I wonder who they are…

On the basis that the average tax rate of a Malaysian is about 15%, the increase of personal allowance of RM1,000 means you will have an additional RM150 to spend. That’s circa 30 additional plates of char-kuey-teow for you in 2010. Yay! Go knock yourself out. But if you have 3 credit cards, tough luck mate.

RM500 broadband deduction, average 15% tax means additional RM75 or circa 15 plates of additional char-kuey-teow a year. But if you have more credit cards, then………

This is important… the additional RM1,000 allowance for EPF/life insurance deduction is only applicable for deferred annuity paid for contract concluded after 1 Jan 2010. Sounds alien? Zewtily speaking, you have to buy additional insurance in 2010 in order to get this deduction.

It means you have to spend additional RM1,000 in order to save about RM150 of tax. So all the extra char-kuey-teow that you can get from the additional individual allowance and broadband deduction will be gone if you take this up. Worse, you may even need to pay more money! Which means… less char-kuey-teow next year! That’s big deal mate!

As for the RM50 for each credit card, I personally think it will share the same fate as toll. I.e. we will just complain and complain and at the end of the day, just pay. Just like how most Malaysians cannot survive without cars thus needing to pay toll, most Malaysians cannot survive without credit cards (emphasis on plural).

Last but not least, GST, which I have blogged about
a few years ago is indeed coming. The wind in the tax industry is strongly blowing the fact that it will be announced before the end of this year. When that comes, that will be really hell…

That’s basically the budget for a regular I-don’t-care-about-politics-and-other-complicated-things man on the street.

Monday, 6 July 2009

That 10 + 5 that you pay

I realised a lot of people are actually quite confused about that additional “++” that you pay when you eat at a restaurant. The general understanding is that they are “govt tax”. But do you really know what exactly it is that you are paying for? Allow me to enlighten you.

The “++” is made up of 2 components.

The first component is “service charge”, usually at 10%. This is NOT a tax. In fact, there is actually no law to say that you must pay this amount. This additional 10% is what the restaurants charge you for the service you receive, namely; taking of your order, laying the towel on your lap, replenishing your water, recommending dishes to you, making you stand on the chair as the birthday song is sung to you, etc.

One should ask, does the additional 10% that you pay match the service that you receive? How many times have we been served by foreign waiters who have no idea of the dishes being served? Some can hardly pronounce the dishes in the menu.

There was once I was at this quite up-class restaurant and we asked the waiter whether this particular dish has got cheese, she just stared blankly at us. When we repeated our questions, her reply was … “I from Myanmar”. This is quite an up-class restaurant which charged us 10% of the bill for such service.

In effect, this 10% is to cover the restaurants’ labour cost in employing waiters to serve you. But you and I know that these labour costs have already been factored into the price of the dishes. Top that up with the I-from-Myanmar type of service, this 10% can be quite a rip-off. But then again, we are rich Malaysians who make a lot of money and since it’s for food, we just pay without asking.

The second component is “service tax”, at 5%. This IS tax. You are legally obligated to pay this under the Service Tax Act, 1975. And here is something you should know…

Previously, restaurants located outside hotels with an annual turnover (i.e. revenue, not profit) of RM300,000 are required to be licensed and collect this 5% service tax from their customers. Effective 1 July 2008, the threshold of RM300,000 was increased to RM3m. [Source: Service Tax (Amendments) Regulations 2008 – PU(A) 216/2008]

This effectively means for restaurants located outside hotel, only those with an annual turnover of RM3m should be charging service tax. So what if you happened to eat at a restaurant which you don’t think is making RM3m in turnover per annum and you are made to pay this 5% service tax?

Well, chances are this restaurant was licensed under the old rule (i.e. RM300,000 threshold) and lazy to go to the Customs and revoke its service tax licence. Since the people paying the additional 5% are you and me, these business people just couldn’t be bothered.

But all if not lost as you can put in a complain at the Customs if you seriously think a particular restaurant not making RM3m a year is charging 5% service tax. One thing though, don’t judge a restaurant by its set up. There are some very old looking coffee shops making millions every year.

And remember, you can only make a complaint if it’s service tax and not service charge. I hope you all have an idea on what’s the difference by now.

Monday, 20 April 2009

Why you are paying tax for meal allowance

It’s the tax-filing season for individuals and just like any other year; I get calls, e-mails, chat messages, etc. asking for free tax consultation. I am sure some of you know why such queries are directed to me. If not, you should be able to deduce the reason.

Anyway, of the many things they asked me; one thing stood out like sore thumb. Almost everyone asked me…

“Eh Zewt, meal allowance is disclosed in my EA Form? I tot the gomen already announced meal allowance not taxable already. No meh?”

Yes, it was proposed in the national budget last year that meal allowance will be exempt from tax in the hands of individual commencing year 2008 and the law has been gazetted. Yes, that is correct… BUT! There’s always a ‘but’, and this is a big ‘BUT’!

Following this new law on meal allowance exemption by the govt, the income tax dept (which also happened to be govt by the way) issued a new ruling regarding it. In that ruling, it states that…

“Meal allowance provided to an employee for purposes such as overtime or outstation/overseas trips and other similar purposes in exercising his employment… … … …… is chargeable to tax and does not fall within this exemption………”

Source: Second Addendum to Public Ruling No. 1/2006 [Point 3.2.3 (iii)]

Yes, meal allowance is not taxable BUT meal allowance for your overtime and travels are taxable. Please also note that meal allowance for “other similar purposes in exercising your employment” is also taxable. That is a big-ass wide coverage if you ask me.

So what kind of meal allowance is really not taxable? Errr… beats me…

This is what I call… give right pocket, take left pocket.

Ridiculous? Stupid? Brainless? Aiya… this is the land of the best nasi-lemak, best char-kuey-teow and best bak-kut-teh; don’t complain so much lah?

2 years go…
What keeps me going

Monday, 8 September 2008

My glimpse on the budget

This is going to be a rather technical write-up and not the regular sounds-funny-make-you-laugh kind of entry. If you are a Malaysian, it will directly or indirectly impact you so, read on if you care to know. Otherwise, you may choose to go… oh, I am not an expert, these are just my thoughts.

What was announced during the Budget Speech 2 weeks ago is not the complete picture of what is to be implemented. Behind the speech, there is a piece of document called the Finance Bill, one which documents all the changes to the law. 90% (or more) of the changes are tax related. It goes to show that Malaysia still heavily relies on tax initiatives to drive the economy, although it is quickly becoming a thing of the past from the global view.

As an ordinary rakyat, our attention is mainly focused on the changes and incentives given to us as individuals, such the reduction of tax rate, tax exemptions of meal and transport allowances and others.

But we must not be oblivious and forget about changes in law that affects the corporate world. Make no mistake, without these modern slavery masters, we will not be getting our salary or allowances, rendering all the reduction in tax rates and tax exemption on allowances absolutely futile. If they get a raw deal and are screwed, so are we.

One amendment made to the tax law is the tightening of this particular tax incentive known as “Reinvestment Allowance” (“RA”), the most common tax incentive enjoy by companies in the manufacturing industry. I am not going to go into the details as it will probably bore you but in short, a manufacturing company can effectively reduces its tax liability by as much as 70% under this incentive.

Putting that into numbers, it simply means a company with tax to pay of RM10m can reduce it to as low as RM3m under this incentive. This incentive is attractive and is rather easy to claim. I would say it is one which is keeping the already depleting number of factories in Malaysia.

Nevertheless, the govt, via the latest budget changes has now placed multiple restrictions into this incentive; making it extremely difficult for manufacturing businesses to claim it. The reason for the tightening of the rules was “to avoid abuse”.

Based on my experience, I do not deny that there are some over-aggresive companies out there in terms of claiming this. However, this can be dealt with via proper enforcement of rules, more proper tax audits for instance. You do not punish the entire industry and risk affecting the economy while at it.

This certainly will not bode well with highly manufacturing driven states such as Penang and Selangor. What happened to making this country business friendly? And is it a co-incident that Penang and Selangor are Pakatan states?

Another measure introduced is this concept called “thin capitalisation”. It basically restricts tax deduction on interest in companies which have small amount of capital. In a nutshell, it simply means that if a company is funded mainly by loans from related companies, it will have to pay more taxes.

In the last year or so, I have personally witnessed foreign investments coming in under my watch as Malaysia does not have thin capitalisation rules. No doubt, thin capitalisation is not foreign to countries such as Australia, UK, America, Canada and Japan. But then again, they are Australia, UK, America, Canada and Japan, while we are… Malaysia. Economically, I think the country is not ready for this new measure.

Just to make matters worse, in true Malaysian fashion, our law-makers intend to govern the entire thin-cap rules with just 2 new sub-section (not even one whole section by itself) in the Income Tax Act, 1967. I was told that thin-cap rules in Australia stretch to about 40 pages.

This has caused a lot of anxiety for a lot of businesses and the industry which will be impacted most is the industry which forms the bread and butter for a lot of nation… the banking industry. I am talking the about the industry which is pushing the economy of America to a near collapse as you read this.

Although it will not cause the economy to fall by just introducing this rules, but it has certainly created a lot of complications in doing businesses in Malaysia. On one hand, the govt may be trying to promote more fixed capital injection in Malaysia. On the other, it might just drive a lot of foreign investors away. As long as the economy is not solid, I think we are just not ready for this rule.

The other new proposal which I think is not very business-friendly is the introduction of withholding tax on “other income” to non-resident. It is very technical to go into the details and you will certainly fall asleep if I am to dwell into it. In short, Malaysia’s treaty partners will not be very happy about this rule.

In addition, it also creates a lot of confusion among Malaysian taxpayers (both individuals and companies) as it is rather difficult to interpret “other income” under this rule. And if this rule is not adhered to, it’s the Malaysian tax payers which will be penalised.

It’s not all gloomy, there are some new tax goodies given to companies. But I feel these goodies only benefit a small portion in the corporate world. Like what I have mentioned in my earlier post, if you want to encourage more tourists to buy more “nasi lemak”, do you give incentives to the tourists, or the “nasi lemak” seller?

In an effort to apparently encourage more foreigners to get listed in Malaysia, tax exemption will be given on corporate advisory fees rendered to foreigners. It means income of the local company providing corporate advisory to foreigners will be tax exempt. And apparently, this will encourage more foreigners to be listed in Malaysia.

Just to digress a little, can someone tell what ECM Libra does?

People always say we only know how to condemn, only know how to criticise. Instead of doing that, we should provide solutions and genuine ideas to improve things. I cannot agree with that more.

But there is one big problem. Do you think they will listen when we sincerely present our ideas to them? Genuine brilliant ideas to improve things, when put forward, tend to end up just like this blog-post… be read, perhaps attract some comments… and be forgotten.

Tuesday, 11 September 2007

“Tax free” dividends?

If you hold shares in the stock market, or your father or mother or grandfather or grandmother hold shares in the stock market, the newly proposed single-tier tax system which results in tax exempt dividends in the hands of shareholders sure sounds like a good deal right?

I am sorry to burst your bubble but you might need to think again. In fact, I think it is detrimental for most of us. And before some of my friends in the industry think that I copy the analysis from anyone, it hit me 2 hours after the budget was announced. I have also made
a comment here on Saturday morning.

Why the exempt dividend arising from the single-tier tax system may not be a good move… hopefully I can explain it without using too many technical terms…

Currently, the full imputation tax system is in force where tax paid on profits at the company level will be distributed to the shareholders as dividends with a credit attached to it. This is why you will see the following breakdownin the dividend warrants based on the prevailing tax rate of 27%:

Gross dividend ------------------>100
Tax deducted at source ------->(27)
Net dividend ----------------------->73

As you may know by now, the actual cash received by you is only 73 because it is a taxable dividend. But you don’t need to pay additional tax because taxes have already been paid at the company level, thus “deducted at source”… deducted from the gross dividend. Hope I am making sense here.

So you will then report this dividend as your income in your annual headache a.k.a. tax return during tax filing season. Then you will need to pay tax based on your chargeable income as per the table shown below. Please note that having a chargeable income of RM12,000 does not mean your monthly salary is RM1,000. A lot of relieves are deducted from your annual salary before arriving in chargeable income, e.g. the newly proposed RM300 deduction for purchase of sports equipment.
As you can see, your will only be taxed at 27% for your chargeable income exceeding RM100,000, all the way till RM250,000 where anything beyond that will be taxed at 28%.

So, assuming that you are a slightly above average income earner of about RM7,500 a month (how many here?), you will then have an annual salary of RM90,000. After deducting all the insurance payments, EPF, medical expenses, fees, children allowances, sports equipment, books, etc… you then arrive at your chargeable income of say… RM68,000 (just an estimate). Based on the table, your highest tax rate is only 19%.

What exactly happens here? This simply means that the dividends which you received are to be taxed at 19%. But since tax has already been paid at 27% (as above), you will actually get a refund of 8% and this refund is being incorporated into your tax via the Section 110 set-off. Okay… it’s getting a bit technical here but let’s just say you will have a tax benefit. The lower your chargeable income, the higher the tax benefit.

Now, if you are a person who earns only RM2,500 a month; you will not be in a tax-payable position. If you; or your parents or grandparents are pensioners, you will then be totally exempted from paying tax. This simply means that when such persons receive dividend income, the “tax deducted at source” will be FULLY refunded. With reference to the calculation above, the company will pay you 73 and 27 will be refunded by the government.

Now… what happens now when the dividends under the single-tier tax system are exempt from tax? Referring to the calculation above again… you will receive a net dividend of 73 and it’s exempted from tax. And because it is tax free dividend, you don’t need to report it in your tax form and because you don’t need to report it, you will not get the refund in respect of taxes paid on the profits at company level.

It basically means that the government will tax companies at the prevailing corporate tax rate (27% for 2007) and if you happen to be a shareholder of that company, and so happened your tax bracket is lower than 27%... too bad, you’re screwed. If you’re a pensioner and hold a lot of shares, you’re wonderfully screwed.

Now, how many here are going to say hallelujah to tax free dividends?

Disclaimer: This is purely a personal opinion and does not constitute tax advice. Please consult your own tax advisor for a clearer picture.

Sunday, 9 September 2007

Budget for you, spending for them

Warning: Rather long and boring entry ahead.

Some call it an exciting budget… some call it a ‘poor’ budget… some even call it the people’s budget… most call it an election budget. No matter how we call it, what does the budget means to you and me? How exactly does it impact a regular Malaysian?

I do not claim to be an expert but I think these are a few budget proposals which a regular Malaysian like you and me should know about…

For those who have purchased property before, you will know that there is a tax in the form of ‘stamp duty’ which needs to be paid. Yes, it’s a tax which the buyer needs to pay. For a property worth RM250,000, you will probably needs to pay stamp duty of about RM4,000 (this is an estimate only). The budget proposed that a 50% reduction of stamp duty for property worth not more than RM250,000 so our pocket can save about RM2,000 we purchase a property worth not more than RM250,000. Not a bad move.

Better if you are transferring properties between husband and wife. Stamp duty will be fully exempted from such transactions. Whether there will be any restrictions on the value of property transferred, yet to be known.
Next, the widely discussed abolishment of school fees and free text books for all. It seems that many claimed that the savings from this proposal is too minimal to be felt and is widely regarded as an election proposal. Indeed, this proposal will not benefit urban folks much but it does means a lot to the non-urban population. Vote winning formula? Perhaps… but then again, shouldn’t schools be totally free to begin with?

The proposal which was supposed to make us all feel very good is that EPF contributors will be allowed to withdraw balances from Account 2 to pay monthly housing instalments. Sounds like a good idea. But if you were to think properly… the government is basically allowing us… to use our own money… to pay for our own house. And we are supposed to feel thankful about it? You tell me…

For those of us who have children, there may be good news for you. Scholarships offered by the government via JPA will be increased from 5,000 to 10,000 with significant increase in allowances given to overseas students. There are a couple of JPA sponsored students who read AZAIG, but there were also a lot of AZAIG readers who failed to get a JPA scholarship recently (you know who you are). Will this really benefits your children and mine? I shall leave that to you.

I read in a blog saying that one does not need to worry about fees anymore because one of the budget proposal was a tax relief for education fees to all post-graduate studies of up to RM3,000. To put things into a better perspective… you will probably only be able to actually get a tax benefit if you earn a monthly income of perhaps… RM5,000. Even that… your savings from this relief is probably about… RM400. Again, this is an estimate. So… do you really don’t need to worry about your fees? Okay… better than nothing right?

On top of that, there is also a tax relief for purchases of sports equipment of up to RM300. The tax savings for that, assuming you are earning RM3,000 a month, will probably be about RM24. If you earn lower… then the savings will be lower lor…

One very peculiar proposals stood up amongst the rest… beginning 2008, public listed companies will be required to disclose their employment composition race and gender, as well as programmes undertaken to develop domestic and Bumiputera vendors. I wonder why.

Those were the few things which I think you should know. There was a single-tier tax system being proposed but it will be too technical to discuss here. Also,
I said that there will be reduction of individual tax rate but it didn’t happen. Instead, there was a reduction of corporate tax rate which I am sure it will not affect anyone of us here. If the reduction of corporate tax benefits you, I am sure you don’t be reading blogs. As expected, GST was not announced.

The other parts of the budget are mostly about how the government is going to spend our their money.

On a related note, the
mainstream newspaper gave a very brief picture about how the government ministries spend their money. Apparently, our government is a generous one, always paying premium… extra premium for stuff. To be really honest with you, I am really surprise the mainstream actually reported this.

Pictures courtesy of TheStar.

Among some of them which deserves to be highlighted was RM5,741 for a car jack worth RM50. I think I want to sell car jacks to the government. Maybe I should sell books too cause the government also purchased technical book sets worth RM417 for a whooping RM10,700. And not just 1 set… 10 sets bought! Makes us wonder how much the government will spend to buy those text books for students, don’t you think?

Wednesday, 25 April 2007

Tax and cheap

I was at the MICCI taxation committee meeting today and all the members were discussing about our proposals on the 2008 National Budget when someone talks about the tax regime in Malaysia as compared with our neighbour known as Sillypore Singapore. Well, some of you may not be paying taxes for now but I think you will find some of the things I have to say useful to a certain extend.

A little background information for those who are not aware, the National Budget is the time when our Pak Lah appear on TV talking about how much money the gomen will spend on this and that and this and that in the following year. It’s also a time when he will probably announce stuff like reduction in road tax or passport renewal fees. If you are a smoker or a drinker, it’s a time when you will find out that your ciggies and alcohol will be more expensive, because taxes on these 2 items always increase. And before that happens (usually in September), all the professional bodies are asked to submit the respective proposed amendments to tax laws or equivalent.

So it was during the discussion on our proposals when the notion about individual taxation here in Malaysia vs Singapore cropped out. So how much taxes are we paying as compared to our neighbour, who we always make fun of? Check out the following tables (please click to enlarge):

A quick glance and you will know that the highest rate for Sg is much lower compared to us. Further, you will only be taxed at the highest rate in Sg if you earn above SG$320,000 while in Malaysia, RM250,000 is the top band. Maybe some of us will want to be taxed at such high rate, because that means we are earning so much money. But I think if you are that rich, you won't be spending time reading blogs.

Therefore, we poor souls have to look at the lower ends. In our beloved country, earning RM2,500 a year and you will be subject to tax already (based on the schedule). However, there is an individual rebate of RM350 if you annual chargeable income is RM35,000 and below. In layman terms, it simply means if your chargeable income is RM35,000 and below in a year, your tax will be reduced by RM350.

I am sure many is asking what is chargeable income. On normal circumstances, chargeable income means “all” your income minus your individual relief of RM8,000 and minus all your other deductions like EPF, medical insurance, parents medical, life insurance, purchase of books, etc. It is your net income. By the way, your money earned from your Adsense and PPP, chances are you may have to report it. Those of you who happily and proudly declaring all your income in your blog… one day those fellas from the gomen see your blog and realised you never reported them… then… good luck!

Back to our taxes… with the rebate of RM350, effectively, we are only paying tax if our chargeable income is RM20,000 and above. From this aspect, we are on par with Sg, as they only start to pay tax when their chargeable income is above SD$20,000. But, look at the schedule… if our chargeable income is at RM35,000, our tax rate is already 7%, while in Sg, it’s only at 5.5% at a chargeable income of SG$40,000. If I continue, I might just confuse some of you so I leave it to your intelligence to analyse the 2 schedules.

One thing to ponder, our maximum deduction available for EPF contribution is RM6,000, and life insurance is included in it. This means if we more than RM6,000 of EPF is deducted from our salary in a year, and we have life insurance, we still only be able to claim RM6,000. Sucks right? Well, tell ya’ what… in Sg… understand that full deduction on their CBF (equivalent to our EPF) is allowed. This means… lower chargeable income for them… higher chargeable income for us.

Now, most of you will know that slaves workers in Malaysia are paid lower as compared to our equivalent Singapore counterparts. This simply means we are underpaid and over-taxed. It’s as simple as that.

Right, I hear some of you saying, Sg has got GST. First, I’ve blogged before, GST may also happen in Malaysia. Secondly, taking GST consideration… how much are Singaporeans paying for their goods and services. Let’s take the so ever famous you-and-I-must-have-one-if-not-you-and-I-are-not-cool… and i-Pod. Many of my friends travel to Sg just to get one… they said it’s cheap, even after conversion. This simply means, if i-Pod is sold at RM1,000 in Malaysia, it’s being sold for less than SG$440 in Sg.

What does this mean? A person earning RM here and a kiasu-ian earning SD$ there… with a dollar to dollar comparison… it means we are not only underpaid and over-taxed… we are also paying almost double for our goods.

You know we always we are one of the cheapest country around?... Particularly our petrol. Well, you know what is truly cheap?.... us.

P/S: I got the “how much your blog is worth” thing up at my sidebar… wow… really worth so much? Yay!! I am rich!

Wednesday, 4 April 2007

What's with GST?

You know the time when you walked into McD or KFC, and you order a combo meal which costs you RM7.90… you’ll end up paying RM8.30. Ya’ know, you have to pay 5% gomen service tax. Ok right? Cause we are all used to it.

Now, imagine you walked into Kedai Kopi What-Fatt-What-Fatt, you order a “Char Kuey Teow” which usually costs RM4, and you end up paying RM4.20? How about that? Do you know it may be happening?

Now, a reader told me today that reading all my ‘serious’ entries made her ‘fall asleep’, she prefers my entries regarding my views on life. Fair enough, but before you fall asleep… imagine all the new blouse, new pants, new bras, new panties that you’re gonna buy may all be subject to tax? Would you like to know more?

Ladies and genitalmen (term stolen from Wingz), the name of the game is Goods and Services Tax (“GST”). Just a brief introduction, the gomen announced some time in Sept 2004 (during the 2005 Budget announcement), that GST will be implemented in this country. The supposed implementation date was 1 Jan 2007.

Why it is not implemented yet? Apa jadi? Well, the gomen announced some time in early 2006 that implementation of GST will be postponed. What’s the reason for this act of generosity? No one knows for sure. And for the sake of being a responsible blogger, I shall not speculate.

Now… the keyword there is ‘postponed’… the gomen didn’t say GST will be abolished. So there will be a time when you and I may need to pay tax for our ‘chee cheong fun’, roti canai, bak kut teh, condoms, vibrators, etc. The million dollar question is of course …. When?

Tax experts have dubbed GST as an ‘efficient tax collection’ tool. Ya’ know, all those fellas who don’t pay every year, those fellas who make money from those ‘cannot-see-light’ activities, all have to pay tax when GST is implemented. I mean… all have to eat roti canai and bak kut teh right? And all have to buy condoms also right?

Jokes aside… what does GST means? GST is a tax levied on ALL goods and services (except those exempted by law). Therefore, to me, GST means more money out of my pocket because every time I spend, I need to pay tax. GST means all those vultures out there who are looking for opportunities to increase prices of their goods will do so at a flash, because they have to pay tax when they buy their raw material. They may be able to able to claim back their ‘input tax’ but that’s too technical to be discussed here. In a nut shell, GST means poorer you and me, unless you are freaking rich already till you don’t care if you have to pay tax when you buy condoms.

Back to the million dollar question… when will GST be implemented? A story was once told about a guy who will treat his gf extra nice when he wanted sex. Basically, before he wanna screw his gf, he has to treat her nicely.

Last year, during the 2007 budget announcement, gomen announced that corporate income tax rate will be reduced from 28% to 27% and subsequently to 26%. Last month, gomen announced that RPGT will be abolished. Can you see any screwing coming? Well… maybe, maybe not.

On a related note, reducing corporate income tax means companies will have more money from tax savings and they are “supposed” to use those savings to pay better salary/bonus to their employees so that the employees can survive GST, if GST is implemented. Well, do you think companies will do that? Hmmm… employers are a different species from the guy that I mentioned earlier. That guy will treat his gf nicely before he screws… as for employers… they just screw us. Period.

On another related note, did you feel pissed when gomen increased toll charges? Every Tom, Dick and Harry and Mary, Jean and Jane were pissed, some even went and protests and shout vote out the gomen la, vote this vote that la. Judging by this, what do you think will happen when all of us have to pay tax for our roti canai, bak kut teh, chapatti and condoms? Who will you vote?

Therefore… perhaps, just perhaps, the gomen will not implement GST until election is over. And since gomen said election will not happen till 2008 or 2009, then I guess we are quite safe la. But… just but… if there is a snap election… get your ass ready for a royal screwing.

Monday, 2 April 2007

Happy with no RPGT?

I was talking to Politikus, a political blogger the other day. As usual, when you talk to a political blogger, the topic tends to be… well… somewhat political. Was talking about election and some hero calling us bloggers liars and stuff like that when I mentioned the gomen is really giving out lots of goodies… one being the abolishment of Real Property Gains Tax (“RPGT”). Politikus’ reaction was…. “Huh! What is RPGT?”. Well, can't blame Politikus, after all, Politikus graduated with a degree in law and politics, not the usual boring accounting and finance.

For those who are not aware, the gomen announced that RPGT will be abolished effective 1 April 2007 (If I am not mistaken). This means, when you buy and sell property and make a profit, you don’t need to pay tax anymore. Prior to this, you need to.

No need to pay tax ya’ know… don’t pway pway… No tax… Nice or not? Well, nice if you have a lot of property, nice if you are a property tycoon. But for you and I who makes just enough to pay car instalment and housing instalment… by the time we clear our credit card bills, we are already praying hard for next month’s pay… how to be happy at such news?

When the news first came out… wahhhh… everyone was saying… very good oh, sell my house, make some money, no need to pay tax. They talked as though they have 10 or 20 house to sell. I think people shouldn’t be throwing party at the abolishment of RPGT because:

1. You and I don’t have many properties to sell;
2. As an individual, RPGT rate is 0% when you hold a property for more than 5 years, i.e. you and I don’t need to pay any tax if we sell our property after 5 years.

Well, looks like it’s not exactly very good news now huh? Well, the sky is not all dark and gloomy. If you happen to be a super rich dude with very the many properties, then ok la, you can now throw a party to celebrate… make a lot of money no need to pay tax.

If you own a company that holds property(s), then you can also be happy la. This is because corporate property owner needs to pay 5% tax despite holding a particular property for more than 5 years. So companies with property(s) can now do something noble and perhaps give their employees more bonuses. Imagine those property development companies sell a piece of land and make RM10m (it’s possible by the way)… that’s like RM500k worth of tax saved! But will such companies treat their employees in such a nice manner?
Another fella which I think (just think only la) will benefit from this are the famous toll concessionaires. You know la… they are very pitiful ya’ know, build toll for us, and then they claim they made losses, they claim they spend a lot of money repairing those highways, and then they have ungrateful toll users protesting against toll hikes… really not easy to be toll concessionaires. Since so difficult to be toll concessionaires, perhaps they might decide to dispose those highways. And if (just if) they do… then no need to pay tax lor.

So basically, if you have a lot of properties and make money from those properties… no need to pay tax. But if you earn more than RM2,500 a month, you have to pay tax. Nice or not?

On a related note, my friends in the tax industry said they are waiting for the official legislation to confirm the abolishment. Perhaps it’s not as simple as it seems. Ya’ know, the thing with our gomen… sometimes… they give you A… you have to fulfil B, C, D, E, F, G, H….. X, Y, Z before you can get A.