any thing new in Tax Reforms 2018 ?

Any thing new in Tax Reforms 2018?

The establishment of the Tax Reform Committee is part of the government’s effort in reforming the tax system to address tax leakages, reduce the existing tax gap and explore new sources of revenue to increase tax collection.

This followed with the Operational Guidelines No. 1/2018 by the Inland Revenue Board of Malaysia with a special program for voluntary disclosure.

  These Guidelines outline the implementation procedures of the Special Program for Voluntary Disclosure (Special Program) for eligible taxpayers following the 2019 Budget announcement by The Honorable Minister of Finance Malaysia on 02 November 2018.

 Hence, this Special Program is offered to encourage taxpayers to make voluntary disclosure in reporting their income and paying tax within the stipulated period. Besides Malaysia, countries offering voluntary disclosure programs include the United States of America, United Kingdom, Australia, Japan, Singapore and Indonesia to name a few.

In the budget 2019, this program is known as “tax amnesty” of sort trying to secure more tax in 2019.

What is listed in Operational Guidelines No.1 /2018 if they are really the only recommendations of the Tax Reform Committee, I believe this fall short of the tax reforms as expected which is much to be desired after 60years of BN Government.

I also believe what is in the special program is largely nothing new as IRB had been doing it over the years selectively.

We certainly need to do better to address tax leakages, reduce the existing tax gap and explore new sources with the proper legal review of the existing system which has been in place for decades.

Certainly I doubt if there are any new sources of revenues as the present one is already loaded with parameters that can bring much hardship to the willing taxpayers largely for a certain group of people.  Would the new sources deemed to be for more revenues further burden the same group of taxpayers?  What about the other groups that do not really pay income tax over the decades?  That would be true justice with fairness throughout.

With the introduction of accrued accounting from cash accounting in the preparation of all business accounts for submission for taxation irrespective of the size of the companies in Malaysia largely SMEs, this can mean much hardship for such willing taxpayers.  Such small and medium enterprises lack the resources to keep accounting in the accrued accounting especially irrecoverable debts turning into bad debts after accounting for tax purposes is indeed very burdensome for all such companies.  Such companies in cash accounting systems would be penalised heavily by the IRB on desk audit or tax investigation with substantial penalties etc.  So I would suggest that there is a threshold of revenue and/or assets of such companies to kick start their business in cash accounting before they embark on accrued accountings.  Even many Government bodies and Government agencies still work on cash accounting.  Any such collection of late penalties and other heavy penalties imposed by IRB which can be very substantial over the years is not to be considered normal collection of additional tax revenues as there is no measure of regular performance.  To the ordinary businessmen such heavy penalties so paid would be passed on the ignorant consumers at large hence cost of living has escalated over the years of mismanagement of the corrupted Government.

There are many areas of tax reforms to right what has been wrong over the decades and such corrective measures now can address the real tax leakages substantially as they are into the billions of ringgit annually.

The question of religion is indeed sensitive and when income tax revenue is concerned there should be any “taboo” matter as Malaysia is truly a secular nation given a truly multi racial and multi religious status we are in.  So why should we have this lopsided treatment when a famous lawyer Puan Siti Kassim and others have clarified that the national religion is indeed a private matter like all other religions between the practitioners and God. Honestly, I do not know how the policies in Income Tax have any connection with the national religion when everyone has to pay their taxes in similar fashion as per secular laws rather than compromised in any other context.

The areas that the state has got itself entangled in the reduction or leakages of income tax are polygamy, children reliefs (father and several wives/ divorcees) and payment of Zakat. 

I believe there are no published figures on tax leakages on Islamic marriages as why should the Government be involved in sort of “lust” of those people by encouraging them with tax allowances and reliefs when the polygamists justify their personal and private habits that their entitlements is based on their financial capabilities.  if that is the case, why should the State subsidies their habits and such people should pay for their practices?  Only the first wife and their children from that marriage be entitled like all other citizens are entitled to all facilities – health, education, housing discounts etc etc -provided by the Government.  So isn’t this lopsidedness be addressed to reduce all financial leakages?  The identity card should state the status of such people.

The other known aspect is Zakat as allowed in the Income Tax system. Just to illustrate the tax leakages of Zakat, it has been disclosed as follows: RM320,348,661.01 (2001) RM373,924,167 (2002) RM408,430,403.56 (2003)  RM473,269 ,093 (2004) RM 573,088,305 .74 (2005)  RM671,095,888.89 (2006) Source : PPZ-MAIWP Annual Report 2006.  Zakat was established since 1991 and RM2.2 b was collected in 2013.  So how much is it in 2017?  Many companies also claim substantial zakat in their tax returns.  Zakat is utilised for that community only.  Is it timely for a tax reform in this area now?

There are also many areas that financial resources are diverted for the national but personal/private religion and they all add up to tens of billions Ringgit annually.

We have missed “globalisation” hence we also miss some the global revenue sources.

Now we in the threshold of global cryptocurrency but has the Government seriously considered the implications for our fiscal economy? At the budget 2019, the Finance Minister announced that the programme would be laid out in 2019.  I believe this cryptocurrency can be like GST at 6% if not properly implemented.  So what about the tax implication here? So if the shares dealings have not any tax implications due to the volatilities of prices thereof even with the realisation of profits in some transactions against some losses in other, cryptocurrencies should also be not implied with taxation.  The price volatility of cryptocurrencies are wide unlike our national currency are subject to depreciation over time and never recover.  Cryptocurrencies are akin to “gambling”.   If the Government intends to tax the cryptocurrencies deals for gains, then it must be prepared to allow the losses too.  Would this item be in the tax reforms?

Joshua Y C Kong 9/Nov/2018