The following is a very well written analysis by financial and tax consultant KP Bose Dasan (thank you very much).
I am reproducing it in full. Because it is a tad lengthy I have added my comments in between in blue.
Do read this, especially kepada tuan-tuan saudara Melayu. You must understand what is really going on in the country.
I have saved my version of the horror story towards the end.
KP Bose Dasan
I am reproducing it in full. Because it is a tad lengthy I have added my comments in between in blue.
Do read this, especially kepada tuan-tuan saudara Melayu. You must understand what is really going on in the country.
I have saved my version of the horror story towards the end.
Title: Searing Taxes or GDP Growth – the answer isn’t simple
Article by: KP Bose Dasan – Tax and Financial Planning Consultant
The all-important Budget 2020 is on the horizon and it would be good to ponder the options the finance minister has in balancing growth and revenue for the country.
In his inaugural budget he was bold and kept expenditure normal and on expansionary mode. There were no austerity measures. His increases in taxation were on the fringes where there were no major upheavals.
(OSTB : That first Budget was the euphoria just after the GE14 election win.)
But this time with evidence of his measures to increase taxes there may be a turning point with more taxes and austerity in store.
(OSTB : Go ahead Lim Guan Eng. Burden the people with more and more taxes. Kill off the rich as well. The genuine rich work harder, they create employment, they run the factories and the supermarkets. Tax them to death. It will also weaken Tun Dr Mahathir.)
We have a largely apathetic population who perhaps do not know or care how tight a situation the finance minister is facing.
(OSTB : If you are referring the Malay folks they do not read enough. Or they do not read. Period. Or they read Utusan, watch Al Hijrah TV. But the Indians and some Chinese are also pretty ignorant of things. Except for KP Bose.
In his inaugural budget he was bold and kept expenditure normal and on expansionary mode. There were no austerity measures. His increases in taxation were on the fringes where there were no major upheavals.
(OSTB : That first Budget was the euphoria just after the GE14 election win.)
But this time with evidence of his measures to increase taxes there may be a turning point with more taxes and austerity in store.
(OSTB : Go ahead Lim Guan Eng. Burden the people with more and more taxes. Kill off the rich as well. The genuine rich work harder, they create employment, they run the factories and the supermarkets. Tax them to death. It will also weaken Tun Dr Mahathir.)
We have a largely apathetic population who perhaps do not know or care how tight a situation the finance minister is facing.
(OSTB : If you are referring the Malay folks they do not read enough. Or they do not read. Period. Or they read Utusan, watch Al Hijrah TV. But the Indians and some Chinese are also pretty ignorant of things. Except for KP Bose.
In the last budget the following figures were revealed.
Budget 2019 In RM Billions
Revenue 261.8
Operating Expenditure 259.9
Net Development Expenditure 54.7
Overall Deficit 52.7
Operating Expenditure 259.9
Net Development Expenditure 54.7
Overall Deficit 52.7
Direct Taxes: Revenue
Income Tax from Companies 70.18
Income Tax from Individuals 34.95
Income Tax from Individuals 34.95
Operating Expenditure:
Emoluments 82.04
Pensions, gratuities, retirement charges 26.55
From the above we see how precarious our national finances are.
Almost every ringgit of development expenditure has to come from borrowing or selling our national assets.
Almost every ringgit of development expenditure has to come from borrowing or selling our national assets.
- The total income taxes collected from all companies and individuals (RM 105.13 billion) is not enough to cover civil servant emoluments and pensions (108.59 billion).
- We have to take a breather here; total income tax from companies and individuals is not enough to cover civil servant emoluments and pensions.
(OSTB : Kepada tuan-tuan 1.6 JUTA sdra Melayu penjawat awam dan lebih SATU JUTA pesara berpencen - sila faham bab ini dengan cermat.
- Hasil daripada cukai pendapatan (income tax) bagi individu dan syarikat hanya berjumlah RM105 bilion.
- Bayar gaji dan pencen penjawat awam pula sudah melebihi RM108 bilion.
Sila baca conclusion saya. Ada horror story. Kemungkinan besar tak lama nanti kerajaan tidak cukup hasil cukai untuk membayar gaji dan pencen tuan-tuan.
Selain daripada Petronas, kumpulan yang paling banyak bayar cukai adalah syarikat swasta (private sector) dan individu. Ramai daripada mereka (kemungkinan majoriti lah) yang membayar cukai ini adalah bukan Melayu. Especially syarikat Cina dan India.
Hasil bayaran cukai mereka membantu (actually membantu a lot) bayar gaji 1.6 JUTA penjawat awam dan lebih SATU JUTA pesara berpencen.
Saya rasa mereka tidak complain pun terpaksa membayar begitu banyak cukai yang disalurkan kepada 1.6 juta penjawat awam / pesara yang majoriti besarnya Melayu. I dont think they mind.
Saya cuma ingin beri cadangan sedikit:
1. First of all please be thankful to all the hardworking people - Chinese, Indian, Malay, Iban, Dusun etc and all the private sector companies - Chinese, Indian, Malay, Iban, Dusun - who pay their taxes diligently so that 1.6 MILLION of you penjawat awam can get your salaries and pensions on time and every month.
So that you can send your kids to madrasah, you can fly to Turkey for umrah tours, so that you can buy your cars and houses. Please be thankful.
2. Be nice to the people who work hard and who pay their taxes which pays your salaries and pensions.
Make sure you process their applications quickly and approvals are given without too much bullying, too much 'sorry kaunter sudah tutup - datang balik esok', and all the other crap that we can face in the government departments.
(Hello brader Khalid Samad Menteri FT - LIMA TAHUN sudah kami telah beli sebuah premis shoplot. Tukarmilik geran tanah semua sudah selesai LIMA TAHUN SUDAH.
Tetapi DBKL masih hantar notis Cukai Pintu kepada tuanpunya kedai yang lama. SUDAH LIMA TAHUN dan ENAM KALI kami telah isi borang di DBKL untuk tukar nama tuanpunya pemilik. ENAM KALI dalam LIMA TAHUN! And what happened this year 2019? DBKL masih hantar notis Cukai Pintu kepada owner lama.
I say Brader Khalid Samad, stop doing dirty things, wash your hands and semak (atau samak) jabatan 'tukar nama pemilik' di DBKL. Thank you brader - hasbi rabbi jalallah maafi khalbi khairullah . . .)
Pendek kata, jika Tuan-Tuan 1.6 JUTA penjawat awam atau civil servants bekerja keras, memberi sumbangan lebih untuk memudahkan urusan semua manusia ciptaan Allah swt yang bersusun dan beratur di depan tuan-tuan dan puan-puan di jabatan-jabatan kerajaan, tak kiralah jika mereka Cina, India, Melayu, kafir, Islam, hindu, kristian, buddha atau apa bangsa atau agama pun - maka sudah pasti bisnes mereka, urusan mereka, perniagaan mereka, hal peribadi mereka semua akan menjadi mudah. Mereka boleh majukan perniagaan, mulakan usaha baru, siapkan projek dengan cepat yang akan menaikkan pendapatan mereka DAN SETERUSNYA SEMUA INI AKAN MENGHASILKAN KUTIPAN CUKAI YANG LEBIH BAGI KERAJAAN.
MAKSUDNYA CUKAI YANG DIKUTIP DARIPADA MEREKA INI AKAN TERUS DISALURKAN SEBAGAI GAJI DAN PENCEN KEPADA TUAN-TUAN SERTA 1.6 JUTA PENJAWAT AWAM YANG LAIN TANPA PUTUS.
Isnt that a fantastic deal? Sebenarnya mereka itulah 'the goose that lays the golden eggs'. So please do not kill the goose that lays the golden eggs. Bantulah manusia untuk memudahkan urusan mereka di atas muka bumi Allah ini.
Lets continue with Bose Dasan's analysis.
What about all the other operating expenditures like
- RM 33 billion debt service charges, and
- RM22.26 billion subsidies and social assistance ?
(OSTB : Bayar BRIM, bayar sabsidi dan bayar bunga 'pinjaman Islamik' adalah RM55 bilion. Hasil daripada indirect taxes pula hanya RM41 billion. Maksudnya kurang atau defisit RM14 bilion. Titi tak sampai ke seberang. Camno?)
Investment income is unstable and only a special dividend from Petronas had saved the day last year.
(OSTB : Balik-balik Petronas juga. Sekarang dengan harta kekayaan Petronas pun kerajaan tak cukup hasil untuk bayar gaji dan pencen 1.6 juta penjawat awam.)
Tax increases on the fringes - RPGT
- Tax increases were on the fringes of the tax system.
- With Real Property Gains Tax (RPGT) there was an introduction of 5% tax on chargeable gains beyond the holding period of five years.
- The tax rate for companies and non-residents beyond five years is 10%.
- It would be interesting to note if this additional increase in tax is worth disrupting the sanctified rule that RPGT was introduced to curb speculation.
- To turn RPGT into a revenue earner and drift from Malaysia being a capital gains haven is a big price to pay.
- We will know its impact this coming budget.
- Of course revenue is also a function of quantity and the number of real property transactions had sharply dropped during this period.
Under the Income Tax Act, (ITA) the increases were more from a reduction of relief. Deductions for losses and capital allowances were restricted to a seven year period. Further, Group Relief was restricted to only start-up company situations, moving away from the global tax relief provision for group losses.
A major new development was the rule regarding derivation of business income. The concept entrenched in Double Tax Treaties of a place of business denoting permanent establishments was introduced into the main Act.
“a person shall be deemed to have a place of business in Malaysia if that person
has another person acting on his behalf who——
has another person acting on his behalf who——
(A) habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification;
(B) habitually maintains a stock of goods or merchandise in that place of business from which such person delivers goods or merchandise; or
(C) regularly fills orders on his behalf.”.
The impact of this new provision will be interesting to see this coming budget.
Stamp Duty
Stamp Duty
Another increase in taxes on the fringes was with stamp duty. Transactions valued above RM 1 million will now pay stamp duty at the marginal rate of 4%. The increase in taxes is direct but again volume of transactions is key to increase in revenue. And with the sharp drop in the number of transactions the increase in revenue is doubtful.
OSTB : 4% Stamp Duty ? This is insane. That is RM40,000 for an RM1 million Sales and Purchase Agreement. In KL even a terrace house sells for over RM1.0 Million.
SST revenue versus GST
OSTB : 4% Stamp Duty ? This is insane. That is RM40,000 for an RM1 million Sales and Purchase Agreement. In KL even a terrace house sells for over RM1.0 Million.
SST revenue versus GST
SST revenue will be half that of GST. GST was bringing in RM 45 billion while SST will bring in about RM 22 billion.
GST had the complications of tax refunds for input taxes paid and the horrendous mistake of the previous government pooling it with the consolidated fund.
It would be difficult to admit that GST was a more comprehensive tax befitting a modern state but winning election is also important.
GST had the complications of tax refunds for input taxes paid and the horrendous mistake of the previous government pooling it with the consolidated fund.
It would be difficult to admit that GST was a more comprehensive tax befitting a modern state but winning election is also important.
However any attempt to re-introduce GST requires a further study as in my opinion the previous regime went overboard with some of its themes. Consumption tax should have remained consumption in the ordinary sense of the word.
To include capital purchases as consumption with regards to commercial properties, plant and machinery, and a loose definition of what constitutes a taxable business added much confusion to the tax.
The number of businesses that were given exempt status made a mockery of the tax. In more advanced countries the numbers of exempt business were limited.
The bulk of the tax was to be borne by the retail population. Instead, for obvious reasons the businessman was made to bear the additional tax as no input tax relief was given to exempt businesses.
Transport, education, health, finance and residential property were all lumped into exempt status and the burden of taxation fell on the businessman.
To include capital purchases as consumption with regards to commercial properties, plant and machinery, and a loose definition of what constitutes a taxable business added much confusion to the tax.
The number of businesses that were given exempt status made a mockery of the tax. In more advanced countries the numbers of exempt business were limited.
The bulk of the tax was to be borne by the retail population. Instead, for obvious reasons the businessman was made to bear the additional tax as no input tax relief was given to exempt businesses.
Transport, education, health, finance and residential property were all lumped into exempt status and the burden of taxation fell on the businessman.
Two conclusions can be drawn; our politicians and the accounting and legal fraternity were negligent in moulding a good and proper GST system; and the government of the day got too greedy and almost killed the golden goose, the business community.
And now we realise all the income taxes of companies and individuals cannot pay in full the government service emoluments. So where do we go from here?
Taxes as a percentage of GDP
Taxes as a percentage of GDP
In almost all countries in ASEAN taxes as a percentage of GDP stays around 15%. In advanced countries it can go up to even 50%. These countries offer maximum socio-economic benefits to its citizens.
ASEAN countries leave a lot of economic salvation issues to its citizens to solve. Health, education, retirement and unemployment are very much left to the individual families to handle.
But huge chunks of transfer payments find their way to the Bumiputra community and so there is some peace in the country. Take away government support for employment, education, business and retirement there will be havoc to contend with.
OSTB : That will not change for a while. Free money and free food is part of the system. But the population is increasing. Its 32 million mouths to feed now. There is going to be havoc.
ASEAN countries leave a lot of economic salvation issues to its citizens to solve. Health, education, retirement and unemployment are very much left to the individual families to handle.
But huge chunks of transfer payments find their way to the Bumiputra community and so there is some peace in the country. Take away government support for employment, education, business and retirement there will be havoc to contend with.
OSTB : That will not change for a while. Free money and free food is part of the system. But the population is increasing. Its 32 million mouths to feed now. There is going to be havoc.
However, in my opinion knowing the standard of civil service in our country, and the level of government care and supervision, with the current level of corruption in the system, it is still better to leave these economic pursuits in private hands.
- We cannot afford to succumb to a full blown welfare society.
- Private enterprise in every sense of the word is still very important to this country.
- Our tax base cannot be increased overnight.
- It needs conscious effort to build our GDP.
- That is the next question that requires major attention.
- How do we increase GDP?
With a population of less than six million and with no natural resources, the tiny country of Singapore has almost the same GDP as Malaysia and a per capita income that is five times more.
If we hold a national referendum and ask all politicians from both sides of the divide to devise ways to increase our GDP we would make great strides in solving our economic woes.
OSTB : This will be Bose Dasan's first and only joke in this analysis. Ask ALL the politicians from both sides to devise ways to increase our GDP? You mean you expect the buggering semburits, "protect the rapists", malu apa boss ku and all the other monkeys to generate ideas how to grow the GDP?
Aiyya, if they knew how to grow the GDP you would not be writing this analysis.
Instead we are busy defending unknown threats. Malaysia for all Malaysians has no champion yet. We are all postponing a very important conversation that needs to happen.
If we hold a national referendum and ask all politicians from both sides of the divide to devise ways to increase our GDP we would make great strides in solving our economic woes.
OSTB : This will be Bose Dasan's first and only joke in this analysis. Ask ALL the politicians from both sides to devise ways to increase our GDP? You mean you expect the buggering semburits, "protect the rapists", malu apa boss ku and all the other monkeys to generate ideas how to grow the GDP?
Aiyya, if they knew how to grow the GDP you would not be writing this analysis.
Instead we are busy defending unknown threats. Malaysia for all Malaysians has no champion yet. We are all postponing a very important conversation that needs to happen.
Article by: KP Bose Dasan tax and financial planning consultant educating people to enjoy investing and retire happily.
Email: kpbose@gmail.com
My conclusion.
By coincidence another reader sent me (thank you) a file about YB Ong Kian Ming's take on the State of the Malaysian Economy presented at the Economic and Leadership Forum 2019.
There were many colourful slides presented to show how great and how diversified was the Malaysian economy.
Ok we are diversified but so are many other countries. As though Sri Lanka or Chile do not have manufacturing or finance or construction or mining or transport and storage?
This is the government's revenue base.
Its a colourful chart.
Except for that one odd bit of red colour in that corner. We will come to that.
The chart says that ALL government revenues are going down - especially in 2019.
That is where that red colour comes in - it was that special dividend from Petronas (I think). I dont think Petronas can keep paying special dividends. So how Budget 2020?
Dear readers, I dont want to sound pessimistic, but you can start panicking now.
Ini bukan saya cakap tau. Jangan marah saya.
This is what the YB Minister has put up on his charts.
Direct taxes, non-oil revenue, oil revenue, SST etc represent the ENTIRE ECONOMY.
THE GOVERNMENTS REVENUE COLLECTION ACROSS THE ENTIRE ECONOMY IS GOING DOWN. CORRECTION - HAS GONE DOWN.
Tuan-tuan you still go to work every morning.
You still put in an eight hour or 10 hour day.
But everywhere in Malaysia (where you work) profits are down.
Losses are increasing. Across all sectors.
That is why that chart shows tax revenues decreasing.
Other countries are producing more than us at lower costs.
Or much higgher value added.
Or both.
Yes we export but we do not earn enough.
Before they needed US33 for every RM100 of our products.
Now they need only US25 for every RM100 of our products.
Kita sudah miskin.
There are too many free loaders in this country - yang dapat duit buta - without making enough effort.
The crony system, the political patronage, the monopolies, the oligopolies, the controlled economy, the 1.6 MILLION penjawat awam. The free this and the free that. The corruption, the non delivery, the kaunter tutup - all these are sucking up resources WITHOUT giving their due portions in return.
AND THE VESTED INTERESTS.
It is all connected. The head bone is connected to the neck bone, which is connected to the shoulder bone and on.
There are solutions. I always keep repeating this mantra.
There are solutions to all our problems.
They are easy, effective, very, very cheap, long lasting and ALL of us will become healtheir, wealthier and happier.
If you have been reading this blog you must be bored by now with all my prescriptions.
It is going to be the same prescriptions.
For now - just not to bore you too much - the government must really do TWO things.
1. Put that ARMY of 1.6 MILLION civil servants on a war footing. They must really work productively and produce the output to create growth in the economy.
Cut the red tape, multiply the effectiveness of the One Stop Centers, make it easier and quicker to approve licenses, permits, building approvals, investment approvals, import permits etc etc.
Work harder and work faster to assist the economy generate more economic activity. Jangan garu teloq ok.
2. Do not hire new Civil Servants to replace each Civil Servant who is retiring. For every FIVE retirees hire one new replacement. This means lesser civil servants must shoulder more work loads. Please do. The Civil Service is bloated as it is. And take down the Civil Service to say 50% of the present level in say FIVE years.
The old models will not work anymore.
The country is headed for disaster.
If the government does not change - not only will the government be kicked out - but the country will be doomed.
3. Lim Guan Eng - do not burden the people with new or extra taxes. The people are suffering enough.
Do not tax the rich more than the next fellow. The rich are rich because they work. I am talking about the working rich - those who work 12 hours a day taking care of their multi million Ringgit enterprises.
Do not punish the rich by taxing their hardwork and their success.
The rich create employment, they build new factories, they build new shopping complexes, they expand their businesses, they buy new trucks and lorries.
Leave the rich alone to do what they are good at.
My conclusion.
By coincidence another reader sent me (thank you) a file about YB Ong Kian Ming's take on the State of the Malaysian Economy presented at the Economic and Leadership Forum 2019.
There were many colourful slides presented to show how great and how diversified was the Malaysian economy.
Ok we are diversified but so are many other countries. As though Sri Lanka or Chile do not have manufacturing or finance or construction or mining or transport and storage?
- But our construction industry is sitting on billions of Ringgit of unsold properties.
- Manufacturing has seen major shutdowns. High tech and value added is not growing fast enough. It is sluggish.
- Plantation giants like Felda have been killed. Sime Darby is selling plantation land by the billions of Ringgit.
- MAS is flying on fumes.
- Tourist arrivals have shrunk last year. (I say YB Ong Kian Ming how come there is no Tourism on your chart? That bad ah?
- And the Ringgit is steady at RM4.++ to the Dollar.
This is the government's revenue base.
Its a colourful chart.
Except for that one odd bit of red colour in that corner. We will come to that.
The chart says that ALL government revenues are going down - especially in 2019.
- Direct taxes have decreased from 49.3% (2018) to 44.7% in 2019.
- SST has decreased from 9.8% to 8.4%.
- Other non oil revenue decreased from 19.2% to 16%.
- Oil related revenues have gone down from 21.7% to 19.5% in 2019.
That is where that red colour comes in - it was that special dividend from Petronas (I think). I dont think Petronas can keep paying special dividends. So how Budget 2020?
Dear readers, I dont want to sound pessimistic, but you can start panicking now.
Ini bukan saya cakap tau. Jangan marah saya.
This is what the YB Minister has put up on his charts.
Direct taxes, non-oil revenue, oil revenue, SST etc represent the ENTIRE ECONOMY.
THE GOVERNMENTS REVENUE COLLECTION ACROSS THE ENTIRE ECONOMY IS GOING DOWN. CORRECTION - HAS GONE DOWN.
Tuan-tuan you still go to work every morning.
You still put in an eight hour or 10 hour day.
But everywhere in Malaysia (where you work) profits are down.
Losses are increasing. Across all sectors.
That is why that chart shows tax revenues decreasing.
Other countries are producing more than us at lower costs.
Or much higgher value added.
Or both.
Yes we export but we do not earn enough.
Before they needed US33 for every RM100 of our products.
Now they need only US25 for every RM100 of our products.
Kita sudah miskin.
There are too many free loaders in this country - yang dapat duit buta - without making enough effort.
The crony system, the political patronage, the monopolies, the oligopolies, the controlled economy, the 1.6 MILLION penjawat awam. The free this and the free that. The corruption, the non delivery, the kaunter tutup - all these are sucking up resources WITHOUT giving their due portions in return.
AND THE VESTED INTERESTS.
It is all connected. The head bone is connected to the neck bone, which is connected to the shoulder bone and on.
There are solutions. I always keep repeating this mantra.
There are solutions to all our problems.
They are easy, effective, very, very cheap, long lasting and ALL of us will become healtheir, wealthier and happier.
If you have been reading this blog you must be bored by now with all my prescriptions.
It is going to be the same prescriptions.
For now - just not to bore you too much - the government must really do TWO things.
1. Put that ARMY of 1.6 MILLION civil servants on a war footing. They must really work productively and produce the output to create growth in the economy.
Cut the red tape, multiply the effectiveness of the One Stop Centers, make it easier and quicker to approve licenses, permits, building approvals, investment approvals, import permits etc etc.
Work harder and work faster to assist the economy generate more economic activity. Jangan garu teloq ok.
2. Do not hire new Civil Servants to replace each Civil Servant who is retiring. For every FIVE retirees hire one new replacement. This means lesser civil servants must shoulder more work loads. Please do. The Civil Service is bloated as it is. And take down the Civil Service to say 50% of the present level in say FIVE years.
The old models will not work anymore.
The country is headed for disaster.
If the government does not change - not only will the government be kicked out - but the country will be doomed.
3. Lim Guan Eng - do not burden the people with new or extra taxes. The people are suffering enough.
Do not tax the rich more than the next fellow. The rich are rich because they work. I am talking about the working rich - those who work 12 hours a day taking care of their multi million Ringgit enterprises.
Do not punish the rich by taxing their hardwork and their success.
The rich create employment, they build new factories, they build new shopping complexes, they expand their businesses, they buy new trucks and lorries.
Leave the rich alone to do what they are good at.
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