accounting & finance

With an ever-increasing cost of domestic living in Malaysia, questions after questions storm the brain, defeating general perceptions and acceptance towards spending. Because almost all conveniences we can find today in and out of a city requires some form of financial base, there’s almost nothing left in this world you can get for free (albeit the oxygen we breathe in). This should be pretty much where our infamous quote comes from:

No money, no talk; no money, no honey.

And so forth.

While we’re not pushing the topic on “How to spend your money wisely” or “How to budget your income” in both the corporate and personal arena, KLM Finance is going to talk about tax conundrums in Malaysia, today. What has tax come to, where is it going, some of the government’s activities on tax and so forth. Read on.

Tax & the Malaysian Government

All of us can bite our nails or quietly shiver in fear on the government’s imposition, rules & regulations on personal tax for that matter; but the question remains: “How well would you spend taxpayers money?” (Click on the link to read news article)

1. First, it’s understood recently that airport tax will not be reduced because we’re one of the lowest.
2. And we can finally calm down a little when the Malaysian government said “NO” to 10% on GST.
3. New Zealand cuts personal & corporate taxes, then raises GST from 12.5% to 15% while Britain increases its VAT (Value Added Tax, which is pretty similar to our GST) from 17.5% to 20%.
4. (Historical) Malaysia will be introducing 4% GST.

That’s quite enough on current news.

In the corporate sector, many would’ve felt the pinch of the financial downturn caused sometime ago last year – Then CFOs’ from small companies to large multinationals and GLCs’ suggest a singular, most basic mandate – “Let’s do more with less”. Literally, this reflects financial trouble faced by companies in their day-to-day activities.

As a result, budget cuts are implemented and profits are withheld, kept safe in a locked room. Sales proposals can be seen to be more vigorously pushed, yearly operational costs are greatly reduced and; there’s this sudden realization of business fact: “Corporate Tax planning“.

Tax Planning Epiphany

It may not be too late for you and your company to indulge into tax planning – And that’s if you’ve had your share of “let’s do more with less” then the brainstorming of how to reduce company operational costs, or, reading this article.

Everyone running a business or a company should give a thought to this: “Would investing in improvements based on high-value activities make a substantial contribution to a company’s tax ability to create more avenues for ‘less for more’ tax?”

If logic strikes you in the head, you’ll probably go for the answer “Yes”. It’s not illogical to say no, but when you aggressively pursue profitability under strict enforcement of regulations, you may end up in higher costs and taxes in the long run. Gaining extra advantage in tax planning during a mid-economy crisis may not bode well for you and your organization after all.

Are you asking me to reduce my company’s profit for tax benefits?

Not really. Profitability isn’t profit – Both the terms may seem similar but are different in context. Instead of looking forward to push for more profits during a rough economic climate, give some thought to ‘maintain’ your company’s profitability in the meantime, while push for higher profitability during a economic restoration.

Companies could reduce cash tax payments/effective tax rate (in Malaysia’s case, 2009’s year of assessment is 20-25% depending on paid up capital) by promoting tax efficiency (by hiring a tax advisor for consultancy), improve management & oversights of tax related risks or improving tax planning.

KLM Finance will continue this topic next week.