School grades don't matter much?

Accounting firms PwC and EY start a trend in recruitment to help business and society

 

Big Four

WE all know that good grades in school won’t necessarily land you that first job. They do however go a long way towards convincing a potential employer that you’re likely to perform well if hired. That’s why you’re routinely asked to produce certificates and transcripts during the application process. How else can the employer get a quick reading on the discipline, intelligence, diligence and knowledge of a school-leaver or a fresh graduate?

But what if an employer decides that your grades shouldn’t matter as much? How will that change things?

For the answer to that, we ought to be watching the Big Four accounting firms in Britain.

Starting in June last year, PricewaterhouseCoopers (PwC) stopped using the UCAS tariff as an entry criterion for most of its undergraduate and graduate recruitment schemes. Developed by the Universities and Colleges Admissions Service, the tariff is the British system for allocating points to those seeking undergraduate placements.

The system applies to a long list of entry qualifications — for example, A levels, City & Guilds diplomas, and music examinations — and the points for each qualification are worked out based on the levels of achievement.

Before this, a person usually must have a minimum number of UCAS points before PwC would consider his job application, even if he’s a graduate. This is apparently a common practice in Britain. With the policy change, the accounting firm can now overlook mediocre A-level results if the candidate has gone on to soar in his degree programme.

PwC says the reduced emphasis on UCAS points is because it’s important to be a progressive and socially inclusive employer, and because it wants to reach the broadest range of talented students.

“There’s strong correlation that exists in Britain between social class and school academic performance. This data suggests that by placing too much emphasis on UCAS scores, employers could miss out on key talent from disadvantaged backgrounds, because they may perform less well at school. That’s why, from an academic perspective, we’re focusing on your degree,” it explains on its website.

And then in August, Ernst & Young (EY) announced that it would remove academic qualifications from the entry criteria for its 2016 graduate, undergraduate and school-leaver programmes. Instead of insisting on certain standards for UCAS points and degree classification, the firm relies on “a new and enhanced suite of online “strengths” assessments and numerical tests to assess the potential of applicants”.

In other words, EY recruits by evaluating the candidates’ strengths and promise, not just their past performance.

This decision came after talent management firm Capp had studied EY’s student selection process over 18 months. The analysis found that EY’s strengths-based approach in recruitment, introduced in 2008, is a robust and reliable indicator of a candidate’s potential to succeed in his role in EY.

“At EY, we are modernising the workplace, challenging traditional thinking and ways of doing things. Transforming our recruitment process will open up opportunities for talented individuals regardless of their background and provide greater access to the profession,” says Maggie Stilwell, the managing partner for talent.

“Academic qualifications will still be taken into account and indeed remain an important consideration when assessing candidates as a whole, but will no longer act as a barrier to getting a foot in the door.”

“Our own internal research of over 400 graduates found that screening students based on academic performance alone was too blunt an approach to recruitment. It found no evidence to conclude that previous success in higher education correlated with future success in subsequent professional qualifications undertaken.”

It’s interesting that Stillwell describes an overriding dependence on academic qualifications as a blunt approach. Stephen Isherwood, the chief executive of Britain’s Association of Graduate Recruiters, has a similar view. The PwC press release on the firm’s move to drop the UCAS points entry criteria, quotes Isherwood: “Using a candidate’s UCAS points to assess his potential is a blunt tool and a barrier to social mobility. This is an innovative step by one of the most significant graduate recruiters in Britain. Other graduate employers should follow its lead.”

PwC definitely sees itself as a trendsetter, saying its new recruitment assessment process could drive radical change across its industry. However, these radical changes haven’t happened yet. So far, Deloitte and KPMG, the other two firms in the Big Four, are still sticking to their minimum academic requirements in Britain.

It’s too soon to conclude that the recruitment changes by PwC and EY are a failed experiment.

The war for talent is intense among accounting firms. Businesses can’t stay at the top without thinking out of the box, taking bold steps, and being caring. It should be no different when it comes to how they hire people.

By Errol Oh Optimistically cautious viewpoint

Executive editor Errol Oh joined an accounting firm right out of school. That doesn’t happen in Malaysia anymore.

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Big Four Corporation

The Big Four are the four largest international professional services networks, offering audit, assurance, tax, consulting, advisory, actuarial, corporate finance, and legal services. Wikipedia

Budget 2016: Malaysia not bankrupt ! PM said

http://english.cntv.cn/2015/10/24/VIDE1445654042676167.shtml

Prime Minister Najib Abdul Razak is tabling Budget 2016 themed ‘Prospering the Rakyat’ in the Dewan Rakyat.

Budget 2016 is the first budget under the 11th Malaysian Plan but it is also the toughest the prime minister has had to work on.

This is amid falling revenue due to the drop in commodity prices, on top of the need to keep the country's deficit in check.

In his speech, the prime minister said Malaysia is not a failed state or bankrupt and stressed that the fundamentals are still strong.

The house erupted when Najib took a jibe at the opposition, saying that the opposition, which at first opposed the goods and services tax (GST), has now included it in their alternative budget.

Budget allocations:

- 2016 Budget allocates a total of RM267.2 billion, an increase from a revised allocation of RM260.7 billion for 2015. The initial allocation for 2015 was RM273.9 billion.

- For 2016, federal government revenue collection is projected at RM225.7 billion, up RM3.2 billion from 2015.

Taxes:



- Income tax increased from 25 percent to 26 percent for people earning between RM600,000 and RM1 million. Increased to 28 percent for those earning above RM1 million.

- Goods and services tax to increase government revenue by RM39 billion, versus RM27 billion in the first eight months of 2015. Some basic goods to be zero-rated, including over-the-counter drugs, baby milk, nuts-based food, noodles.

- Price of oil expected to remain low in 2016, so collection from oil-related resources expected to be around RM31.7 billion.

- Prepaid phone users will get GST rebate, which will be credited to their accounts. From Jan 1 next year.

- For medicine, it would be increased from 4,215 kinds of medicine to 8,630 kinds of (zero-rated GST) medicine.

- If Malaysia has no GST, national deficit will be 4.8 percent. With GST, deficit expected to be 3.1 percent for 2016.

- If Malaysia stuck to the sales service tax (SST), collection would only be RM18 billion. Whereas GST has netted RM39 billion.

- National revenue would reduce by RM21 billion if there was no GST.

- GST flat rate: all controlled medicine, including 95 brands of over-the-counter medicine used for diseases such as cancer, high blood pressure and heart diseases.

- More Small-time farmers can register under flat-rate GST scheme and increase two percent income - threshold for those who can apply decreased from RM100,000 to RM50,000.

- Exemptions from GST for all items that are being re-imported after being temporarily exported for promotion, research or display.

- For oil and gas industries, GST exemptions given to re-import of equipment exported temporarily for rent. For teaching material and equipment, for skills and vocational training. Tax relief:

- Parents with disabled children get RM6,000 tax relief and another RM14,000 if their child furthers their studies.

- Tax exemption of RM8,000 instead of RM6,000 for children above 18 in an education institution both local or overseas.

- Children supporting parents, even if not living together, will receive a tax relief of RM1,500 for both parents, if the parents are above 60.

- Tax exemption of RM4,000 instead of RM3,000 for those with a spouse with no income.

- Middle class families with a household income between RM3,860 and RM8,320 will get RM2,000 tax relief for every child under 18.

BR1M:

- BR1M to be continued. Based on response, Najib says the people are thankful for the help. BR1M allocations to be increased, with one new category.

- For those earning below RM1,000, BR1M increased to RM1,050

- Those earning below RM3,000, BR1M increased from RM900 to RM1,000

- Those earning RM3001-RM4,000, BR1M increased from RM750 to RM800

- Single people aged 21 and above earning not more than RM2,000, BR1M increased from RM350 to RM400

Minimum wage:

- Minimum wage to increase from RM900 to RM1000 a month for Peninsular Malaysia, except for domestic workers.

Expenditure:

- RM50 million to improve prison security measures

- RM13.1 billion to improve safety and national security.

- RM4.6 billion for vaccine, consumables, medicine in public hospitals.

- RM30.1 billion is allocated to the economic sector.

- RM13.1 billion is earmarked for education and training, health, housing and the well-being of the people.

- RM5.2 billion is allocated to the security sector.

Development:

- 2,000 affordable homes for the military, starting 2016.

- RM180 million to set up the National Disaster Management Agency.

- The government has allocated RM52 million for 328 1Malaysia clinics. Apart from this, 33 new 1Malaysia clinics will be opened.

- Five new hospitals will be constructed in Pasir Gudang, Kemaman, Pendang, Maran and Cyberjaya. Kajang Hospital to be redeveloped.

- RM150 million will be allocated to improve 11,000 homes belonging to the poor in rural areas.

- A total of 5,000 Rumah Pr1ma housing units and PPA1M to be built in 10 locations near LRT and Monorail stations, whereas 800 units of affordable homes by GLCs near MRT stations in the city centre.

- 20,000 houses for Felda, with the maximum price reduced to RM70,000 compared to RM90,000.

- The government will build 22,300 flats and 9,800 terrace houses under the Rakyat Housing Scheme.

- 100,000 houses, priced between RM90,000 and RM300,000 for civil servants will be ready by 2018.

- 10,000 Mesra Rakyat houses to be built, with RM20,000 subsidy for each unit. The government has allocated RM200 million for this.

- New boats and facilities for 1Malaysia clinics in rural areas.

- RM864 million to procure offshore patrol vessel and patrol boats.

- RM70 million interest-free loans for longhouse building in Sabah and Sarawak. Limit of RM50,000 loan for each longhouse unit.

- RM360 million will be used to improve National Service and RM160 million allocated for NGOs.

- The Pan-Borneo Sarawak Highway that is set to be completed in 2021 will be toll-free. It is 1,090km-long and costs RM16.1 billion.

- RM900 million allocated for 'Project Traffic Dispersal' at Jalan Tun Razak, to be executed immediately with the strategic cooperation of public-private sectors.

- RM42 million to build Mukah Airport in Sarawak and upgrade Kuantan and Kota Bharu airports.

- Develop Malaysian Vision Valley, 108,000 hectares from Nilai to Port Dickson, with forecast investments starting with RM5 billion in 2016.

- Execute Cyber City Centre in Cyberjaya with development valued at nearly RM11 billion over a five-year period

- Develop Bandar Lapangan Terbang or Aeropolis KLIA in 1,300 acres of land and expected to attract as much as RM7 billion investments.

- Investments estimated at RM18 billion for 2016 for RAPID Complex Project in Pengerang, Johor.

- The government will pump RM515 million for efforts to improve electricity supply in Sabah.

- RM67 million allocated for bus operation routes outside the city.

- The government will fork out RM60 million for social amenity projects and flood prevention efforts.

- RM1.2 billion will be allocated to improve Internet speed from 5mbps to 20mbps.

- The government will continue negotiations regarding high speed rail with Singapore.

- RM28 billion for new MRT projects, which would benefit two million residents

- RM730 million for the development of chemical industry, electronic and electrical machinery, aviation, medical equipment and services.

- For Felda settlements, RM200 million will be used improve roads in these areas.

- The government will fork out RM1.4 billion to improve rural roads nationwide. Aid:

- Aid for students slashed from RM540 million to RM350 million. In the past, RM100 aid was for all primary and secondary students. However, it has now been limited for students whose household income is less than RM3,000.

- A total of 1.2 million students will receive the 1Malaysia book voucher worth RM250.

- RM300 a month aid for poor senior citizens.

- RM662 million has been set aside to help children from poor families - aid of RM100-RM450 a month.

- RM2 billion allocated for aiding the disabled, senior citizens and poor families. RM350/month for working disabled persons, RM200 for those who are unemployed. RM300 a month for those who are bed-bound.

- Skim Khairat Kematian - RM1,000 to be continued

- RM100 aid for households with income below RM3,000. Expected to benefit 3.5 million students.

Others:

- To enable more workers to benefit from Socso, there will be compulsory savings of up to RM4,000 instead of RM3,000.

- RM200 million for first home deposit funding scheme.

- RM40 million to do infrastructure and easy loan programmes for Chinese residents of new areas to pay land premiums and house restorations.

- RM50 million by SME Bank to help small Indian entrepreneurs.

- RM100 million for Indian socio-economic development programmes.

- Tekun to provide RM100 million loan for Indian entrepreneurs.

- RM90 million allocated as micro-credit loans for small traders and Chinese businessmen.

- RM300 million allocated to improve the welfare and development of the Orang Asli community.

- Government aims for 30 percent women involvement in decision-making levels in public and private sectors.

- All economy class flights will be exempted from GST for rural routes.

- Malaysia has agreed to the Trans-Pacific Partnership Agreement (TPPA) in principle, while it has inked 13 Free Trade Agreements (FTA).

- For farming, RM5.3 billion will be used for the purpose of modernisation.

- The tourism sector is expected to contribute RM103 billion. To make it more convenient for tourists, e-Visa for seven countries will be made available in mid-2016.

- The poverty rate has been reduced to 0.6 percent in 2014 from 3.8 percent in 2009. In fact, extreme poverty has almost been wiped out.

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Budget 2016 Sets Stage for Next Five Years



Malaysia's Tax Structure No Longer Competitive: Deloitte's Yee

'Cliff' worries may drive tax selling on Wall Street

By Caroline Valetkevitch

NEW YORK (Reuters) - Investors typically sell stocks to cut their losses at year end. But worries about the "fiscal cliff" - and the possibility of higher taxes in 2013 - may act as the greatest incentive to sell both winners and losers by December 31.

The $600 billion of automatic tax increases and spending cuts scheduled for the beginning of next year includes higher rates for capital gains, making tax-loss selling even more appealing than usual.

Tax-related selling may be behind the weaker trend in the shares of market leader Apple , analysts said. The stock is down 20 percent for the quarter, but it's still up nearly 32 percent for the year.

Apple dropped 8.9 percent in this past week alone. For a stock that gained more than 25 percent a year for four consecutive years, the embedded capital gains suddenly look like a selling opportunity if one's tax bill is going to jump sharply just because the calendar changes.

"Tax-loss selling is always a factor (but) tax-gains selling has been a factor this year," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

"You have a lot of high-net-worth individuals in taxable accounts, and that could be what's affecting stocks like Apple. If you look at the stocks that people have their largest gains in, they seem to be under a little bit more pressure here than usual."

Of this year's top 20 performers in the S&P 1500 index, which includes large, small and mid-cap stocks, all but four have lost ground in the last five trading sessions.

The rush to avoid higher taxes on portfolio gains could cause additional weakness.

The S&P 500 ended the week up just 0.1 percent after another week of trading largely tied to fiscal cliff negotiation news, which has pushed the market in both directions.

A PAIN PILL FROM THE FED?

Next week's Federal Reserve meeting could offer some relief if policymakers announce further plans to help the lackluster U.S. economy. The Federal Open Market Committee will meet on Tuesday and Wednesday. The policy statement is expected at about 12:30 p.m. on Wednesday after the conclusion of the meeting - the Fed's last one for the year.

Friday's jobs report showing non-farm payrolls added 146,000 jobs in November eased worries that Superstorm Sandy had hit the labor market hard.

"After the FOMC meeting, I think it's going to be downhill from there as worries about the fiscal cliff really take center stage and prospects of a deal become less and less likely," said Mohannad Aama, managing director of Beam Capital Management LLC in New York.

"I think we are likely to see an escalation in profit-taking ahead of tax rates going up next year," he said.

MORE VOLUME AND VOLATILITY

Volume could increase as investors try to shift positions before year end, some analysts said.

While most of that would be in stocks, some of the extra trading volume could spill over into options, said J.J. Kinahan, TD Ameritrade's chief derivatives strategist.

Volatility could pick up as well, and some of that is already being seen in Apple's stock.

"The actual volatility in Apple has been very high while the market itself has been calm. I expect Apple's volatility to carry over into the market volatility," said Enis Taner, global macro editor at RiskReversal.com, an options trading firm in New York.

Shares of Apple, the largest U.S. company by market value, registered their worst week since May 2010. In another bearish sign, the stock's 50-day moving average fell to $599.52 - below its 200-day moving average at $601.38.

"There's a lot of tax-related selling happening now, and it will continue to happen. Apple is an example, even (though) there are other factors involved with Apple," Aama said.

While investors may be selling stocks to avoid higher taxes in 2013, companies may continue to announce special and accelerated dividend payments before year end. Among the latest, Expedia announced a special dividend of 52 cents a share to be paid on December 28.

To be sure, the big sell-off in stocks following the November 6 election was likely related to tax selling, making it hard to judge how much more is to come.

Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston, said there's a decent chance that the market could rally before year end.

"Even with little or spotty news that one would put in the positive bucket regarding the (cliff) negotiations, the market has basically hung in there, and I think it's hung in there in anticipation of something coming," he said. - Reuters

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Malaysia's Tax Budget 2013: politically savvy for general election? Housebuyers may struggle to pay!

Beyond the statistics of Budget 2013, it is clear that the government is well aware that the middle income group has found itself in a sandwich position.

FOR some in the Malaysian middle class, especially those in the upper income bracket, there is not much to cheer about Budget 2013.

But this is a group that is not easy to please. If they have their way, they would want to have personal taxes reduced. I would want to pay less to the taxman too, but it is also about time that we wake up to the reality of having the consumption-based goods and services taxes (GST) implemented.

It may not be politically savvy to introduce the GST prior to the general election but the fact is the current tax base is simply too narrow. Just over a million people are now paying personal income tax in a country of over 27 million people.

Through the GST, the tax net would be wider and those who spend on more pricey items would just have to pay for them. An ordinary wage-earner buying economy rice or roti canai won’t have to pay GST, for sure.

But if you buy a Louis Vuitton bag in KL, then it’s only right that you pay a hefty GST bill, and help the government raise its tax revenue. If we want to encourage tourism, we just have to follow what other countries are doing – limiting GST only to our citizens. Tourists, even if they are rich sheikhs, can apply for tax refunds at the airport.

That’s how GST works, but there is a general election ahead. The government does not want to be in a defensive mode, where it has to explain how GST works.

We are always looking to pay less while we expect the government to spend more to boost the economy, or even give away monetary goodies to spur spending.

When the government spends, it has to look for money. Currency speculator George Soros is surely not a good option.

Reducing by one percentage point for those with chargeable income between RM2,500 and RM50,000, as proposed in the Budget, plus the other tax reliefs, also mean that only 1.7 million people will now pay taxes compared with the workforce of 12 million.

Beyond the statistics, it is clear that the government is well aware that the middle income group has found itself in a sandwich position. They are the ones who feel the rising cost of living the most, and any effort to reduce their tax burden should be lauded.

It is this group that the Budget wants to target. The rich can take care of themselves and the poor has been taken care of.

The higher income group would still benefit, in some way, as regardless of how much one earns, the existing tax relief for their children’s education has been increased to RM6,000 from RM4,000 per child.

But it is the financially distressed wage earners, especially those in the lower earning bracket, who are doing their best to stretch the ringgit. After paying for their home rentals, car or motorbike loans and food expenses, there is nothing left, really. Saving itself is difficult, let alone finding the downpayment for the first home.

The affordable houses scheme would be essential to allow this group of urbanites to believe that they can own houses. The government must make it work.

Another measure that is targeted at this group is the 50% discount on KTM fares for Malaysians earning RM3,000 and below monthly. I would have preferred the government to just provide a blanket free KTM ride during peak hours in the mornings and evenings.

I am curious to see how KTM plans to carry out the registration of commuters who qualify and give them the special discount cards. If it is not effectively carried out, due to practical logistic issues, this scheme is definitely open to abuse. So the government might as well just provide free rides.

The whining upper middle class won’t be joining the queues at the crowded KTM stations, that’s for sure. It will still be the same KTM passengers who want to cut down on their financial expenses because they live in the outer city zones or even in Negri Sembilan but travel daily to Kuala Lumpur to work or to study.

The 70 new 1Malaysia Clinics will surely be welcomed as they would be a great help to the urban poor. Furthermore, 350 clinics would be upgraded and an additional 150 dialysis machines will be made available in government haemodialysis centres nationwide. All measures to improve healthcare facilities for the masses are surely welcomed.

But there is one area where the whining from the Malaysian middle class is legitimate – the crime problem.

We have repealed laws such as the Emer­gency Ordinance because the intelligentsia in urban areas demanded it. But the reality is that many of the Simpang Renggam graduates are now on the streets and the police cannot find these crooks because their hands are tied.

Budget 2013 has allocated for 496 CCTV cameras to be installed in 25 local authorities nationwide to prevent street crime in urban areas. This is like a drop in the ocean and surely insufficient.

We should have thousands, if not hundreds of thousands, of these cameras put up, as in London, to keep an eye on potential criminals.

As I write this, I have just been informed that my colleague had his new car hijacked by two men while he was on his way home with his wife and son in Subang Jaya. Incidents like this point to the necessity of having more of our policemen out on patrol.

The proposal to increase the number of police personnel for patrolling and combating crime is in the right direction. The police also have to review how police reports are made so that a person making a simple report about a car accident, or a lost handbag, does not have to compete with people making reports for serious offences. We need to put our policemen on the streets, not behind desks.

Let us consider making Rela, the civil service group, and volunteer policemen take over simple tasks like crowd and traffic control. The Budget has proposed an additional 10,000 officers for the Police Volunteer Reserve force. This is not something new but it will definitely reduce the unnecessary burden on the police.

On the Beat By Wong Chun Wai

 

HBA: Housebuyers may struggle to pay

Among the goodies were the building of 123,000 affordable homes at a cost RM1.9bil in key locations such as Kuala Lumpur, Shah Alam, Johor Baru, Seremban and Kuantan. The houses will cost between RM100,000 and RM400,000 each.

THE National Housebuyers Asso­ciation (HBA) has warned that house-buyers may struggle to service monthly loan payments if they buy homes under the My First Home scheme.

An applicant with a household income of RM5,000 a month, or a couple with a combined income of RM10,000, will not be able to afford the monthly repayments of a RM400,000 housing loan based on a 30-year repayment period after taking into account other household expenses and mandatory tax payments, said its secretary-general Chang Kim Loong.

Chang said applicants who commit to housing loans of RM400,000 with an average interest rate of 4.75% would end up having to pay RM2,086 each month.

“Based on Bank Negara Malaysia (BNM) guidelines, a single loan repayment cannot exceed one third of the applicant, or joint applicant’s gross income.

“It would also be a potential disaster for a household which cannot afford to fork out the 10% down payment from their savings to commit to a RM400,000 loan,” he said.

He said house buyers should always match the repayment period with the number of remaining years they expect to work.

Otherwise, he said, the applicants would not be able to retire, or end up committing their children to continue paying the loan.

On PR1MA, he said, the price cap of RM400,000 for homes was too high.

“PR1MA should be pricing their properties below RM300K, preferably in the range of RM150K to RM300K to cater to a wider base of the middle-income and lower-income groups,” he said.

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A promising Malaysian tax budget for 2013 this Friday?

A promising Malaysian tax budget for 2013 this Friday?

Broadening income tax bracket will benefit the rakyat as a whole

IN the next few days, the Finance Minister will share with the rakyat the financial health of the country and the Government’s proposed budget for the next 12 months.

With the mission of “Driving Transformation Towards a Developed Nation”, the Government would have the unenviable position of balancing the economy of the country amidst the uncertainties in the external market, as well as ensuring that the plight and wishes of its rakyat are not forgotten, especially in these challenging times.

As tax consultants, we have the opportunity to hear from our clients their expectations and hopes for the upcoming budget. This article aims to analyse some of these expectations as well as the writers’ views as fellow taxpayers and as a rakyat.

Lower taxes

Looking back at the past four budgets, the Government has introduced various ways of lowering the taxes for resident individuals. (See graphics)

While a reduction in tax rate is always a welcome relief to any taxpayer, it would still depend on which level the rates are reduced as it may only benefit certain taxpayers as can be seen in 2010 whereby only those in the highest tax bracket benefited from the 1% tax rate reduction.

What the Government has not introduced is the broadening of the income tax bracket, especially at the lower rates, which will not only benefit those from the lower and middle-income group but the rakyat as a whole, with a higher disposable income. (See tables)

The tax relief available in respect of premiums for education or medical insurance has not been reviewed since 2000. Further, the RM3,000 tax relief limit covers both education and medical insurance.

As education and healthcare are essential for every rakyat and his family, the Government should consider granting tax relief for each category of the insurance premium separately – one for education and another relief for medical insurance.

The Government has also not reviewed the child relief, which has remained at RM1,000 per child below 18 years of age since 2004. Any parent will vouch that providing for a child’s wellbeing is neither easy nor cheap. Any increase in child relief for tax purposes would be welcomed.

Affordable homes

Over the last few months, the news of spiralling property prices has been hitting the media.

Currently, the Real Property Gains Tax (RPGT) regime for residents and non-residents are the same, i.e. tax is charged on the gain from sale of real property depending on the duration of ownership of the real property regardless of the residence status of the seller.

Genuine resident home buyers, particularly young families who do not yet have high disposable income, are usually at the losing end compared to non-resident buyers, who are usually buyers with higher purchasing power and who perhaps have more speculative intentions.

In the past, the Government has introduced incentives such as stamp duty exemptions. However, the threshold to qualify for the exemption is limited to those properties which have value not exceeding RM350,000, thus leaving young city folks hard-pressed to find homes within this range given the spiralling property prices.

An effective measure previously introduced by the Government was the deduction in respect of interest expended by individuals to finance the purchase of residential property.

Unfortunately, this incentive was only valid for purchases whereby the sale and purchase agreement was executed within a specific period of time, which has since lapsed. The Government could re-introduce this incentive.

The Government could also consider imposing different RPGT rates for residents and non-residents. If there is a concern that foreign investors will shy away as a result, conditions could be put in place for non-residents to be eligible for the resident rates, for example:

 

• having stayed in Malaysia for a number of years or
• set up business operations in Malaysia for a number of years, etc.

Alternatively, to quell speculative transactions, the Government could consider increasing the RPGT rates for disposals made within five years from the date of acquisition of the property, which is currently at 10% and 5%, to perhaps the present corporate tax rate of 25%. Disposal after five years will be exempted from RPGT. Genuine home buyers should not be adversely affected by this measure.

A similar measure, although from a stamp duty perspective, was adopted by a neighbouring country whereby affected buyers are required to pay an Additional Buyer’s Stamp Duty on top of the existing Buyer’s Stamp Duty. The affected buyers are mainly foreigners and non-individuals, or individuals who owned more than one or two residential properties. This is also an avenue for our Government to consider.

By NEOH BENG GUAN and NG SUE LYNN

·Neoh Beng Guan is executive director of KPMG Tax Services Sdn Bhd while Ng Sue Lynn is director.

New tax rules create a quandary for lending to family members

CHARGING below market interest gets you in trouble with the taxman or the law against money-lending.

“Neither a borrower nor a lender be”.

This advice by Polonius, the King's adviser to his son in Shakespeare's Hamlet remains good advice today.

But good advice, it is said, is least heeded when most needed.

Lending money gives rise to risk of default, a stark reminder of today's global phenomenon.

At a personal level, it can lead to the loss of a friend, a relative remaining one only by virtue of blood ties.

The term “relative” is defined in our tax law to include a wide network of family members including a nephew, a niece, a cousin and somewhat incredibly “an ancestor or lineal descendant.”

How the latter is to be determined, the law has not made clear, leaving the conundrum perhaps to the wisdom of the courts.

In many cases, loans between family members are below-market loans.

By this is meant that the lender charges either no interest or a rate that is less than the “market rate” also known as the “arm's length” rate.

This is in breach of the tax law, which requires a loan to a related party including a relative to be at the market rate of interest.

This requirement has been made clear by a recent Government Gazette setting out rules on transfer pricing as the rules do not state that such loans must be in the context of carrying on a business or must be used in a business.

Thus when you make a below market loan to a relative, driven entirely by altruistic reasons and devoid of any business considerations, the tax law treats you as having derived imputed' income from your borrower and would proceed to levy tax on that imputed income.

This phantom income on which tax is levied equals the market rate you should have charged less the interest you actually charged.

This means that you must report the imputed interest as taxable income in your tax return failing which you will be in default of the tax law.

If you were to consider avoiding this unfavourable tax outcome by being somewhat hard-hearted and charged interest to your relative, then you are in breach of the Moneylenders Act.

The law here precludes the charging of any interest since you are not a licensed moneylender.

A moneylender under this law is any person who “lends a sum of money to a borrower in consideration of a larger sum being repaid to him”.

So this puts you, the lender, setting out to help a financially distressed relative, on the proverbial “horns of a dilemma”.

You are in the untenable position of breaking one or the other law.

This state of affairs seems to run counter to any coherent tax policy objective.

In the United States, the lending of money below market rate historically occurred without tax consequences.

Through a series of court cases over several years culminating in a case in 1984, the court held that the lender's right to receive interest is a “valuable property right” and where such a right is transferred by way of an interest-free loan, it is in the nature of a gift subject to “gift tax”.

But the point here is that the taxing of the interest-free loan is because of the existence of a gift tax.

We do not have such a tax in Malaysia and taxing imputed interest, as this measure is generally known, between related individuals not conducting business transactions, is a retrograde step.

We had long repealed a similar imputed income provision, which treated a person owning an unoccupied house as having an income source, even where no income exist.

Business related loans follow similar concepts, but here the law is entirely understandable and justified where the intent is to avoid tax.

If company A makes an interest-free loan to its subsidiary which is a tax exempt pioneer company, then this leads to tax results which are not reflective of transactions between commercial parties.

Not charging interest inflates the subsidiary's tax exempt profits enhancing its capacity to pay tax exempt dividends, without a corresponding tax liability on the lending parent had interest been charged.

Here the existence of a “tax shelter” where one entity has either tax exempt status or a tax loss position, can lead to tax leakage, the reason for the arm's length rule.

Interest-free business lending between related companies can also lead to anomalous results.

This is a consequence of the divergence between the tax treatment and the new accounting standards for public listed companies.

The taxman will require tax to be imposed on the lender on the imputed market rate interest.

Whereas if such a company lends RM100,000 to its subsidiary interest - free to be repaid in equal instalment over five years and the market interest rate is 10%, the accounts will reflect the lender as having a debt of RM75,816, which is the discounted amount at the inception of the loan.

Over the period of the loan, the borrower will be shown as having paid interest of RM 24,184 which will equal the discount.

Thus the books of both companies will be recorded as if interest had been paid as shown in the table.

Since these are book entries and there are no costs incurred or income earned, they have no tax consequence.

This reflects the economic substance of the loan transaction as distinct from the strict legal substance, the mainstay for tax.

This fundamental difference in concept tends to make attempts at convergence between the accounting and tax treatments particularly problematic.

The more pressing issue is doing away with the taxing of imputed interest on non-business lending between relatives, a measure which seems unjustified.

Kang Beng Hoe is an executive director of TAXAND MALAYSIA Sdn Bhd, a member firm of TAXAND, the first global organisation of independent tax firms. The views expressed do not necessarily represent those of the firm. Readers should seek specific professional advice before acting on the views. Beng Hoe can be contacted at kbh@taxand.com.my

It's a Dumb Scandal, But Taxing Christmas Trees Is Also Dumb

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Timothy B. Lee, Forbe Contributor

My Twitter feed is atwitter today over this post about the Obama administration’s proposal to assess a 15-cent tax on Christmas tree sales. The tax would go to a fund that the Christmas tree industry would use to run advertising promoting Christmas trees. After some negative publicity, the USDA says it’s delaying implementation of the tax.

Obviously, the “war on Christmas” spin some conservatives have been giving this story is ridiculous. As various folks have pointed out, this concept has been under discussion since the Bush administration, it’s supported by most Christmas tree growers, and I doubt President Obama had anything to do with it.

Still, I’ve been disappointed by the number of people on the left who have gone beyond rebutting idiotic partisan spin to actually defend the proposal on its merits. For example, several people have linked to this piece:

According to a statement issued by the group, there are at least 18 programs already in effect for other agricultural commodities under the Commodity Promotion, Research and Information Act of 1996.

“This program was requested by the industry in 2009 and has gone through two industrywide comment periods during which 565 comments were submitted from interested parties,” the National Christmas Tree Association said in a statement, adding that nearly 90 percent of the state and multi-state associations who commented on the program supported it.

“The program is designed to benefit the industry and will be funded by the growers at a rate of 15 cents per tree sold,” the release states. “The program is not expected to have any impact on the final price consumers pay for their Christmas tree.”

But some conservatives aren’t letting the facts get in the way of an awesome headline.

The “18 programs” referred to here are industries like milk, dairy, and eggs where taxes are levied to support generic ad campaigns like the dairy industry’s famous “Got Milk” spots. These campaigns are a waste of money, and I see no reason for the government to be levying the taxes to support them. Such campaigns are particularly unfair to niche producers who seek to differentiate their products from those of larger producers, but are nevertheless forced to pay for ads that promote milk (or beef, eggs, etc) as a generic commodity.

Nothing’s stopping the Christmas tree growers who support these ads from pooling their money and buying as many ads as they like. But why should a majority of growers be able to force the minority to contribute to ads they might not want or even agree with?

It’s also hard to take seriously the claim that these taxes won’t raise consumer prices. The economics here are pretty simple: when you tax a product on a per-item basis, producers usually pass the higher costs on to consumers. This is true whether the tax is formally assessed on consumers (as sales taxes are) or on businesses (like gas and cigarette taxes). Either way, the money ultimately comes out of consumers’ pockets. There’s no reason to think Christmas trees (or milk) are an exception to this general rule.

It’s hard to think of any other context where liberals cite industry support as a justification for an otherwise-indefensible government policy. Obviously, it’s worth pushing back on the idiotic “war on Christmas” spin, but the fact that Republicans are making fools of themselves doesn’t change the fact that Congress really ought to repeal the Commodity Promotion, Research and Information Act of 1996.

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