Can Malaysia make it easier to pay taxes?

Pemudah is working on an effective and efficient tax system to strengthen Malaysia’s revenue collection and the public sector

Policy Perspective - By Datuk Chua Tia Guan

 “IN Sweden, we pay taxes online. The corporate income tax, value-added tax, labour contributions and property tax are filed in a single form. Doesn’t everyone do it that way?” This is a question raised by Mr Astrid, a business owner in Sweden where the tax system is highly simplified.

Back home, in Malaysia, what kind of tax system do we want? Have we ever asked ourselves, why can’t we do away with individual tax filing for employees who don’t have income other than salary since they are already under the Schedular Tax Deduction scheme?

How much more tax revenue needs to be collected from such filings vis-a-vis the additional administrative cost incurred?

Successful Tax Reforms

According to the World Bank, simple moderate taxes and fast, cheap administration mean less hassle for businesses – also more revenue collected and better public service. Since 2005, 90 reforms in 65 economies have pointed to the following four most successful tax reforms:

l Introduce online filing
 “A quarter of the world’s countries have electronic filing and payment of business taxes. That means no need for paper documents – and no need for personal interaction with tax officers. A third of the world’s countries now use electronic payment methods such as bank transfers – and half use payment by cheque.”

l Combine taxes
“Almost 50% of countries have more than one labour tax or contribution, 27% more than one tax on profits and 41% more than one tax on property. If the base is the same (salaries, profits or property value), why not just combine them? Having multiple taxes increases the bureaucratic burden for both the taxpayer and tax administration.”

l Simplify tax administration
“Making the tax rules for business complex is unlikely to bring about more revenue – quite the opposite in fact. Countries that do not require special books (i.e. separate book-keeping requirements for tax purposes only) have 10% more revenue (as a percentage of GDP) on average than countries that do. And having a clear tax law increases tax revenue by 6% on average.”

·Reduce tax rates and broaden the base
“High tax rates can force companies into the informal sector (i.e. businesses have a strong incentive to evade taxes). Such countries can increase tax revenue by lowering rates and persuading more businesses to comply with the new tax system.”

Focus Group on Paying Taxes

Based on the above successful tax reforms in other countries, the Pemudah’s (Government’s Special Task Force to Facilitate Business) Focus Group on Paying Taxes addresses the taxes and mandatory contributions that a medium-sized company must pay or withhold in a given year, as well as measuring the administrative burden in paying taxes.

These measures include the number of payments an entrepreneur must make; the number of hours spent preparing, filing and paying; and the percentage of profits they must pay in taxes. Malaysia’s ranking in the World Bank’s Paying Taxes Indicator is tabulated in the table above.

The Focus Group is working on three broad areas:

·Income taxes – corporate tax, individual tax, and stamp duty;
·Customs taxes – sales tax, service tax, excise duty, and goods and services tax;
·Other taxes – Employees Provident Fund (EPF), Social Security Organisation (Socso), Human Resource
Development Fund (HRDF), road tax and quit rent.

Paying Taxes Made Easy

Paying taxes has been made easy with many improvements to the public delivery system in taxation made by the relevant ministries and Government agencies, some of which through the recommendations of the Focus Group on Paying Taxes.

The following are the improvements made to date:

Income Taxes by the Inland Revenue Board (IRB)
·Reducing the period taken for refunding tax overpaid due to companies and individuals from one year to between 14 and 30 days in cases of submissions through e-Filing;

·Refunding tax overpaid for the current year of assessment without reference to the previous years of assessment;
·Years prior to 2006 assessment to be finalised later and further monies repayable/tax payable to be dealt with separately; and
·Refunding tax overpaid directly to taxpayers without the need for formal application.
·Reduce the number of procedures and the processing time taken in the assessment of stamp duty.
·Introduce e-registration for companies and individuals to register their tax files online.
·Companies can submit their estimates and revisions of corporate tax liability online.
·Issue guidelines to stipulate the conditions and circumstances that would allow overpayments to be set-off against tax instalments. This includes guidelines on when a group of companies could enjoy this set-off and the required documents.
·Issue guidelines to stipulate the circumstances in which lower tax estimates could be considered.
·Issue guidelines to stipulate circumstances in which penalties on late payment or under-estimation could be lowered or waived and the scale of penalties which would increase with the number of offences the companies committed.
·Individual employees are relieved of the burden of having to claim for deduction in their personal tax returns with the introduction of a list of common employment benefits.
This guide helps to clarify to the employers the activities that could be considered as expenditures incurred by the employees.
·A joint review of the Public Ruling on Entertainment Expenditure has helped to clearly outline the circumstances under which a company would be eligible for a full or partial deduction on entertainment expenses.
·Taxpayers and tax agents can submit their tax returns at any assessment branch in addition to the central processing centre. All that is required is that they provide the proof of submission by manual means.
·The IRB has also incorporated an English section on its website to ensure that non-residents and foreigners are able to access information pertaining to their tax returns.
·The IRB’s Client Charter now stipulates the timelines for IRB staff to address taxpayers’ appeals and objections. There is an internal mechanism to monitor their adherence to the charter.

Customs Taxes by the Royal Malaysian Customs
·Companies are now allowed to make payments at the nearest Customs office instead of only at controlled stations.
·Excise Forms 7 and 8 can now be downloaded from the website and forms can be submitted through diskette, CD or thumb drive.
·The new Sales Tax Composite Form CJP1 is now only needed to be submitted in three copies instead of the obligatory six copies previously.
·Eliminate the requirement to submit the Daily Sales Record (Attachment A of Form CP3) for Service Tax purposes as well as an attachment to the Sales Tax Form CJ10.

Other Taxes
 ·Encourage electronic submission of EPF, Socso and HRDF contributions by employers.
·Introduce MyCOID where companies require just one standard identification number (i.e. the Companies Commission of Malaysia (CCM) registration number) to interact with different Government agencies including CCM, IRB, HRDF, EPF, Socso and SME Corp.

Tax Reform

Tax reform is an important element of our Economic Transformation Programme (i.e. the New Economic Model). Effective and efficient tax system will strengthen our revenue collection and the public sector at large.

Continuous improvements to the tax system would ensure that we are globally competitive in attracting foreign direct investments and encourage domestic investments. The following are some of the proposals currently being pursued by the Focus Group on Paying Taxes:

·Currently, in relation to employment income, the Schedular Tax Deduction (STD) is made on the basis that tax reliefs are claimed on EPF, spouse and children only. As such, the STD may be over-deducted and resulted in a tax refund situation.

It is proposed that taxpayers with only an employment income source who do not wish to claim the tax refund be exempted from annual tax filing.

·It is proposed that IRB makes an advance announcement that compensation for late refund for tax will be implemented, say in 2015. This will allow IRB to have sufficient time to make preparation for the execution.

·The six-year timeframe within which a tax audit can be carried out is too long and creates uncertainty for business. In Australia, the timeframe is four years and in the United Kingdom it is around two years. In line with global benchmark, it is proposed that time barred to be reduced from six years to four years.

·To consolidate the payments for EPF, Socso and HRDF into one payment.

·To standardise the definition of wages for the purpose of computing EPF, Socso and HRDF contributions.

Together, We Can Do It Better

Since the establishment of Pemudah, many improvements to the public delivery system as initiated by the task force have been made by the respective ministries and agencies.

These improvements are in the areas of starting a business, business licences, dealing with construction permits, immigration matters, tax administration, trading across borders, enforcing contracts, registering property and e-payment facilities.

Details can be found at Pemudah’s website, www.pemudah.gov.my.

These improvements would not have been achieved without the hard work of the government ministries and agencies as well as the suggestions and feedback from the public. We strongly believe that together we can make Malaysia a good place to do business and a great place to live.

Datuk Chua Tia Guan is a member of Pemudah and chairman of Pemudah’s Focus Group on Paying Taxes.

New directions for young lawyers

The younger set of lawyers needs to be at the forefront of discourse on changes to legislation practice today as they will inherit the system that will ultimately evolve.

THE National Young Lawyers Committee (NYLC) was formed by the Bar Council with the main objective of dismantling the shackles of Section 46(1)(a) of the Legal Profession Act 1976 that disqualifies an advocate and solicitor of less than seven years’ practice from being a member of the Bar Council, or Bar Committee, or any committee of the Bar Council.

It was thought that this disqualification smacked of inequality to young lawyers. After a series of representations to the Attorney-General, Parliament finally, on Oct 2, 2006, repealed Section 46(1)(a), and thereby removed the shackles on young lawyers.

With the shackles removed and young lawyers empowered, what now for the young lawyers? The NYLC’s current primary objectives are:

> Promoting and protecting the interests of young lawyers and pupils in chambers;

> Enhancing the continuing professional development of young lawyers and pupils in chambers for the betterment of the Malaysian Bar and society;

> Providing a platform for interaction and facilitating the exchange of perspectives and views on numerous issues concerning the Bar, professional practice, the administration of justice and law reform; and,

> Maintaining and nurturing good working relations with other Bar Council committees, and various NGOs and the media in advocating issues of concern affecting young lawyers and society in general.

These objectives are insufficient to provide for the needs of society and young lawyers in the current environment.

Society will expect – and even demand – reciprocity of duty and social responsibility with empowerment. Issues on promoting young lawyers’ interests and continuing education should no longer be accorded priority with the existence of the NYLC and a continuing professional development system by the Bar Council.

The NYLC needs to take a stand on professional practice and law reform, and push for its views to be heard.

It is no longer sufficient to merely facilitate an exchange of perspectives and views.

One of the main objectives and duties of the Bar Council, as promulgated by Parliament, is to uphold the cause of justice without regard to the interests of its members and without fear or favour.

This object has been echoed and reiterated by the Bar Council to the tune of infinity.

That notwithstanding, it is still beholden on us young lawyers to sing to this tune and to hold on to it as our primary objective.

To this end, the NYLC needs to expand its aims and objectives to uphold the cause of justice in two wide areas: legal practice in the fast changing environment and law reform, including new legislation.

Litigation practice has seen much change in the past year due to the dogged pursuit by the Chief Justice of the elimination of the backlog of cases.

The changes that have been implemented in litigation practice have certainly affected the administration of justice, young lawyers and society as a whole.

The question being persistently asked is whether the changes benefit society in term of economics of litigation, social values, access to justice, quality of justice meted out and so on and so forth.

Given that the young lawyers will inherit the system of practice that will ultimately be moulded by the current changes, it is critical that the NYLC looks into the changes in detail and gives its views without regard to the interest of its members.

Is the current practice direction by the Court of Appeal in fixing dates for the hearing of appeals without regard to the availability of counsel in breach of the litigant’s right to his choice of counsel?

Is it in the interest of society to encourage lawyers to form large partnerships to ensure that there will be a lawyer to attend to a hearing fixed on a day when the counsel in charge already has another hearing scheduled to proceed in another court?

Will this practice ultimately benefit society or will it burden society with higher costs?

Should the courts commence proceedings at 8.30am, in yet another new direction to change the practice of litigation, bearing in mind that some courts are currently proceeding beyond 5pm – and in some cases till 9 pm – in an effort to eradicate the backlog.

In conveyancing practice, is it in society’s interest to have a fixed scale of costs with no discretion for the lawyer to give a discount?

Although this had been debated for the last seven or eight years, and the resolutions at the AGM of the Malaysian Bar had always supported the no-discount rule, young lawyers should look at the issue from the current perspective, taking into consideration the ever changing nature of society, the future of conveyancing practice, the new Competition Act, bearing always in mind society’s interest.

Is there a pressing need for enforcement rules to ensure the no-discount rule is adhered to? Why can’t lawyers adhere to rules without having to have rules for enforcement?

The NYLC should continue the call to all young lawyers to take up legal aid cases.

The resolution by the Malaysian Bar for every lawyer to take up at least one legal aid case a year must be made compulsory for all, and not remain just a resolution on paper.

All young lawyers must make it their aim to adhere to the resolution and to lead by showing their willingness to heed the call of duty.

The proposed National Legal Aid Foundation will further provide members who choose to do more legal aid work with some form of remuneration.

Law reform and new legislation affecting society are also critically in need of the NYLC’s attention.

New legislation had in the past been promulgated without any, or much input, from all sectors of society.

Although currently there is more consultation with the stakeholders when introducing new legislation, much more needs to be done to ensure transparency and the full flow of information on the effects of the legislation.

Current legislation in the news include the amendments to the Internal Security Act (which the Bar has always advocated for repeal thereto), the introduction of the Whistleblower Act, the Competition Act, etc.

What will be the effects of such legislation on society?

What about the long awaited amendment to the Law Reform Act, which was supposed to allow the non-Muslim spouse of a convert to have access to justice in civil courts?

How can we continue to press and push for amendments to the Printing and Publications Act and other laws that suppress freedom of speech?

In addition to its current aims and objectives, the NYLC will need to expand its priorities and objectives, and strive to attain greater heights in response to the expectations of civil society.

Young lawyers are called upon to heed the call of duty in upholding the cause of justice without fear or favour in implementing the way forward for the NYLC.

Putik Lada
By TONY WOON

The writer is the Chairman of the National Young Lawyers Committee of the Bar Council. Putik Lada, or pepper buds in Malay, captures the spirit and intention of this column – a platform for young lawyers to articulate their views and aspirations about the law, justice and a civil society. For more information about the young lawyers, please visit www.malaysianbar.org.my/nylc.

Prof Gupta: Capitalise on nation’s strength

 Never too late to start innovation-driven economics, say expert

KUANTAN: The Government’s think-tanks need to identify sectors that Malaysia has the edge in and to capitalise on these in its quest to be a developed nation.

Prof Anil K. Gupta, one of the world’s leading experts on strategy and globalisation, said innovation must then be applied on these sectors to achieve national prosperity and competitiveness.

Citing Silicon Valley in the United States, Bangalore in India, Singapore and Finland, Prof Gupta said the global economy was dominated by clusters consisting of interconnected companies and institutions in a particular field.

 

“Unless the diversities result in infighting among the people, innovation is a combination of diverse ideas to the country’s benefit,” he pointed out. PROF ANIL K. GUPTA

“An innovation cluster is never-ending, has no limit and will keep developing over the years, with the Government having a major role to play in ensuring sustainability,” he said after delivering a talk entitled “Sustainable Inno-vation Leadership: Learning and Sharing Best Practices for Building Effective Strategic Initiatives” at the Pahang Foundation Complex here yesterday.

“It is pertinent that the Govern-ment focus its resources on developing these niche economies through education, research and development and offering of tax incentives, for example.”

Prof Gupta was in the state at the invitation of Mentri Besar Datuk Seri Adnan Yaakob to open the Innovative Pahang – Driving State Excellence for assemblymen, top civil servants and captains of industry to expose them to best practices for human capital development and infrastructure excellence.

Prof Gupta said it was never too late to start innovation-driven economies although some neighbouring countries, including Singapore, were ahead in developing world-leading biotechnology hubs.

He said Malaysia’s diversity was an added advantage as its different peoples could contribute different ideas.

“Unless the diversities result in infighting among the people, innovation is a combination of diverse ideas to the country’s benefit,” he pointed out.

Adnan, describing the event as a rare and vital occasion, said Pahang was taking steps to spearhead change at every level to meet the global challenge.

He said Pahang was all for a fair and equal distribution of wealth and against monopoly of the eco-nomy by a select few.

”We will work towards realising Malaysia to be a high income nation and to look after the wellbeing of all people, regardless of race or religion,” he said.

“At the same time, we will manage our natural resources properly for the sake of future generations.”

Adnan stressed on the need to revamp the education system to offer courses tailored to the needs of the market, and to stamp out abuse of power and corruption among politicians and civil servants.