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WHAT IS FUNDAMENTALLY WRONG WITH THE MALAYSIAN TAX SYSTEM Explore corporate governance issues that result in implementation of the tax laws both at government.

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Presentation on theme: "WHAT IS FUNDAMENTALLY WRONG WITH THE MALAYSIAN TAX SYSTEM Explore corporate governance issues that result in implementation of the tax laws both at government."— Presentation transcript:

1 WHAT IS FUNDAMENTALLY WRONG WITH THE MALAYSIAN TAX SYSTEM Explore corporate governance issues that result in implementation of the tax laws both at government level and in the corporate and individual context.

2 “…a system of raising money to finance government.” The World Bank’s World Development Report (1997) emphasized the essential role of government in allocating resources and highlights that taxation and expenditure are essential tools for macroeconomic stabilization, growth, and development. “…a system of raising money to finance government.” The World Bank’s World Development Report (1997) emphasized the essential role of government in allocating resources and highlights that taxation and expenditure are essential tools for macroeconomic stabilization, growth, and development. Taxation

3 Tax Revenue are essential for functioning of the state and society Redistribute wealth Alleviate Poverty Investment in social infrastructure Finance public goods: healthcare, education, transport Support Capitalism Social Development Tax Revenue are essential for functioning of the state and society Redistribute wealth Alleviate Poverty Investment in social infrastructure Finance public goods: healthcare, education, transport Support Capitalism Social Development Tax Revenue Purposes

4 Corporate Social Responsibility + Corporate Social Responsibility “The social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time.” Archie B. Carroll, 1979

5 What is CSR?

6 “…TAX IS A COST TO BE MINIMISED, AND THAT TAX AVOIDANCE IS A LEGITIMATE ACTIVITY ” (JOHN CHRISTENSEN, ECONOMIST & DIRECTOR OF TAX JUSTICE NETWORK) Tax is where CSR begins...

7 The banana trade story companies do not make profit merely by using investors' capital modern corporations have very different intent record profit where the legal right to their "brand", might be located to redirect profit from where it is earned to where the management of corporations want to locate it. physical infrastructure provided by the state, the people the state has educated, the legal infrastructure that allows companies to protect their property rights

8 DIAGEO PLC “businesses have realised that there are other occupants of their world their broader stakeholders. This dependency on our stakeholders, communities and environment means we have a strong interest in their future. We benefit from working with our stakeholders, from the prosperity of our communities and from the stability of the environment. Contributing to these ends is an investment in our own continuing success and the sustainability of our business. …responsibility isn’t merely a bolt on function, but an attitude which we bring to the way we do business.”

9 Diageo and Johnnie Walker: How a Scotch went Dutch guardian.co.uk guardian.co.uk

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11 “No matter what legislation is in place, the accountants and lawyers will find a way around it. Rules are rules, but rules are meant to be broken…” -Senior partner of a major accountancy firm- (The Guardian, 18 March 2004)

12 KPMG: “ Quality and integrity of our people and our work is paramount to everything we do at KPMG. open and transparent Above all, we recognize that we operate in the public interest and we must be open and transparent in our operations and policies. quality and integrity start with culture We believe quality and integrity start with culture. integrity, ethics That s why we place so much emphasis on bringing our shared values alive within member firms Independence, integrity, ethics, and objectivity these are all vital to the way we work. integrity It is the responsibility of each person working within a member firm to maintain their integrity and objectivity. KPMG: “ Quality and integrity of our people and our work is paramount to everything we do at KPMG. open and transparent Above all, we recognize that we operate in the public interest and we must be open and transparent in our operations and policies. quality and integrity start with culture We believe quality and integrity start with culture. integrity, ethics That s why we place so much emphasis on bringing our shared values alive within member firms Independence, integrity, ethics, and objectivity these are all vital to the way we work. integrity It is the responsibility of each person working within a member firm to maintain their integrity and objectivity.

13 “KPMG fined $456 million for criminal wrongdoings……… “ The US Senate Committee discovered that KPMG had devised over 500 ‘active tax products’, some of which may have been illegal. Just four of those 500 products cost the US treasury US$85 billion annually in lost tax revenues, whilst KPMG booked US$180 million in fees. KPMG : “ Based upon our analysis of the applicable penalty sections, we conclude that the penalties would be no greater than $14,000 per $100,000 in KPMG fees.... “ KPMG : “ Based upon our analysis of the applicable penalty sections, we conclude that the penalties would be no greater than $14,000 per $100,000 in KPMG fees.... “

14 Ernst & Young : “We stand for People who demonstrate integrity, respect … People who build relationships, based on doing the right thing … We comply with laws, regulations and standards that apply to us in our professional conduct … We address questions of ethics and consult appropriately to help resolve them. do not hide or ignore issues … We do not hide or ignore issues … Recognize the need to be honest in our competitive behaviour. We reject unethical or illegal business practices in all circumstances … We employ professional scepticism ”. Ernst & Young : “We stand for People who demonstrate integrity, respect … People who build relationships, based on doing the right thing … We comply with laws, regulations and standards that apply to us in our professional conduct … We address questions of ethics and consult appropriately to help resolve them. do not hide or ignore issues … We do not hide or ignore issues … Recognize the need to be honest in our competitive behaviour. We reject unethical or illegal business practices in all circumstances … We employ professional scepticism ”.

15 fined $15 million In July 2003, Ernst & Young fined $15 million for failure to properly register tax shelters in : US Senate Committee found that the firm “… sold generic tax products to multiple clients despite evidence that some were potentially abusive or illegal tax shelters … 72 page charge sheet against “Big-four current and former partners of Big Four accounting firm Ernst & Young ("E&Y") with tax fraud conspiracy and related crimes arising out of tax shelters promoted by E&Y. 2005: US Senate Committee found that the firm “… sold generic tax products to multiple clients despite evidence that some were potentially abusive or illegal tax shelters … 72 page charge sheet against “Big-four current and former partners of Big Four accounting firm Ernst & Young ("E&Y") with tax fraud conspiracy and related crimes arising out of tax shelters promoted by E&Y. An Ernst & Young partner specialising in selling tax services claimed that “We pride ourselves in being a liberal economy, the central feature of such an economy is that residents are free to undertake the activities that they wish [avoid taxes], provided the activities are not unlawful” (Irish Times, 7 May 2004)

16 THE MALAYSIAN STORY…..

17 The World Bank Poverty Reduction and Economic Management Network March 2008

18 Budget 2009 a tax deduction is given for businesses incurring expenses on charitable or community projects relating to education, health, housing, infrastructure and, information and communication technology approved by the Minister of Finance. the scope of charitable and community projects eligible for tax deduction are extended to include projects relating to increasing the income of the poor as well as for the conservation or preservation of the environment. In addition to the aforesaid enhancement, the maximum allowable tax deduction for companies contributing cash donations to approved institutions, organisations or funds for charitable purposes be increased to 10% of the aggregate income, compared with the previous maximum allowable deduction of 7% of the aggregate income.

19 Managing responsibly Our success will be measured not only by our financial performance. It will also be measured by our ability to manage responsibly and to re-invest in the communities in which we operate. Conserving Our Environment Our concern for the environment is being echoed through our efforts to conserve the Sungai Pulai estuary in Johor. MMC’s subsidiary, PTP, and the Malaysian Nature Society of Johor are collaborating on various conservation projects which involve cataloguing various marine life, flora and fauna along the estuary; replanting mangrove trees at Kukup; and gazetting the island close to PTP and within the estuary as a marine sanctuary.

20 RAMSAR SITES THREATEANED THE STAR ( ) A cursory observation by the Johor National Park Corporation showed that Tg Piai had lost more than 50m of coastline between last October and June this year, purportedly due to increased wave actions caused by shipping activities at PTP. Tg Piai, the southernmost tip of mainland Asia, is facing severe erosion. Johor had requested RM5m from the Federal Government under the mid-term review of the Eight Malaysia Plan, to find a permanent solution.

21 RAMSAR SITES THREATEANED THE STAR ( ) Across from PTP, site preparation for a 2,100mw coal-fired power plant has been going on for the past couple of months. The RM7bil project at Tg Bin undertaken by SKS Power is owned by Malakoff Bhd which is under the stable of Malaysian Mining Corporation (MMC).

22 Proposed Petrochemical and Maritime Industries Development on a 913-hectares Mangrove Forest at Tanjung Bin, Pontian - The Truth Behind The proposed project according to its CEIA report approved entitled “Proposed development of 2,255 acres of petrochemical and maritime industries at Tanjung Bin on Lot PTD1357, Mukim Sungai Karang, and Lot PTD 1836, PTD 1837, PTD 1838 and PTD 1851, Mukim Serkat, District of Pontian, Johor “ The process owner is Seaport Worldwide Sdn Bhd, owned by MMC. The first stage in clearing the 913 ha of mangrove forest is of primary concern, as it would disrupt ecosystem given the size of the proposed area.

23 Risks associated with Petrochemical Industries Public safety is of paramount issue in petroleum refinery development. Tragedies resulting from the leakage and explosion of petrochemicals are documented in a few examples below: Close to 10,000 people died as a result of leakage of toxic gas from a petrochemical plant in Bhopal, India on December 3, In Kaohsiong, Taiwan, 171 cases of leukemia have been registered in residents living within 3 km from petroleum refinery between 1997 and The prevalence of preterm birth infants was high in mothers living near the oil refinery plants.

24 Safety / Transition / Buffer zone from Residential Area and Ramsar Site Under the “Guidance Document for the Preparation of Environmental Impact Assessment (EIA) Report – Establishment of Industries Located Within Gazetted and EIA Approved Industrial Sites”, heavy industries must be sited at least 500 m from the nearest residential area. In the United States, residential area within 8 km radius from the petroleum refinery has recorded significantly higher cancer cases among its residents. Several peer-reviewed scientific articles also documented increased cancer risks in residents living within 3 km radius from the petrochemical industries. The proposed project site is sited less than 1 km from Kampung Sungai Chengkih and Kampung Sungai Boh. According to the figure in the CEIA Report Volume 1 (Page 8-55), residential area is located less than 100m from the proposed development site. The project proponent has clearly ignored the policy, subjecting nearby residents to potential health risks.

25 Bakan (2004): “corporation can neither recognize nor act upon moral reasons to refrain from harming others. Nothing in its legal makeup limits what it can do to others in pursuit of selfish ends, and it is compelled to cause harm when the benefits of doing so outweigh the costs. Only pragmatic concern for its own interests and the laws of the land constrain the corporation’s predatory instincts, and often that is not enough to stop it from destroying lives, damaging communities, and endangering the planet as a whole.” (p. 60).


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