KUALA LUMPUR, August 4, 2015: A financial expert has explained to The Mole that the Inland Revenue Board (IRB) has no ground to initiate an investigation into the RM2.6 billion said to be wired from “a donor” from overseas into the personal account of Prime Minister Datuk Seri Najib Razak.
Speaking under condition of anonymity, the financial expert pointed to several provisions of the Income Tax Act 1967 which explained matters regarding the classes of income which tax is chargeable, those considered as resident of Malaysia, and types of income which were not taxable.
Former prime minister Tun Dr Mahathir Mohamad in his latest blog posting had questioned whether IRB has initiated an investigation under the taxation law, based on reports that the alleged RM2.6 billion is now in Najib’s personal account.
“The question that I would like to ask is whether the Inland Revenue Board has acted, with the authority granted to it, on the sum of RM2.6 billion deposited in the personal account of Datuk Seri Najib,” wrote Dr Mahathir.
The Malaysian Anti-Corruption Commission yesterday announced that the sum said to be in Najib’s account was from a donor, and not the state-own strategic investment company 1Malaysia Development Bhd which is currently under its investigation.
The donor was believed to be from a country in the Middle East.
The financial expert said that such donation from a foreigner does not fall under any of the classes of income which tax is chargeable.
“If you read Section 4 of the Income Tax Act 1967 , which listed down the types of income which is taxable, you will not find anything mentioned about money given by a foreigner to a Malaysian in the manner that the RM2.6 billion was said to have been wired into the prime minister’s bank account.
“The law is actually quite clear that income earned outside the country by someone who is not a resident of Malaysia is not taxable even if the money was later on given to a Malaysian, the way the money was said given to Najib.”
He added that a reading of Section 7 of the Act should be necessary for better clarity on who should be considered as a resident of the country.
The financial expert also said that Schedule 6 of Section 127 of the Act, at paragraph 33 further supports his opinion that income of non-resident of Malaysia, earned outside this country is not taxable even if the money eventually ended in a local bank account.
“IRB simply could not be expected to investigate or charge Najib with tax evasion, as what I believe Tun (Dr Mahathir) had in mind when he posed that question. That RM2.6 billion they said to be in his account was simply non-taxable the way it is,” he said.
The provisions of Income Tax Act 1967 as mentioned by the financial expert are as follows;
Section 4. Classes of income on which tax is chargeable.
Subject to this Act, the income upon which tax is chargeable under this Act is income in respect of-
(a) gains or profits from a business, for whatever period of time carried on;
(b) gains or profits from an employment;
(c) dividends; interest or discounts;
(d) rents, royalties or premium;
(e) pensions, annuities or other periodical payments not falling under any of the foregoing paragraphs;
(f) gains or profits not falling under any of the foregoing paragraphs.
4A. Special classes of income on which tax is chargeable.
Notwithstanding the provisions of section 4 and subject to this Act, the income of a person not resident in Malaysia for the basis year for a year of assessment in respect of-
(i) amounts paid in consideration of services rendered by the person or his employee in connection with the use of property or rights belonging to, or the installation or operation of any plant, machinery or other apparatus purchased from, such person;
(ii) amounts paid in consideration of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme; or
(iii) rent or other payments made under any agreement or arrangement for the use of any moveable property,
which is derived from Malaysia is chargeable to tax under this Act.
4B. Non-Business Income.
For the purpose of section 4, gains or profit from a business shall not include any interest that first becomes receivable by a person in the basis period for a year of assessment other than interest where subsection 24(5) applies.
4C. Gains or profits from a business arising from stock in trade parted with by any element of compulsion
For the purpose of paragraph 4(a), gains or profits from a business shall include an amount receivable arising from stock in trade parted with by any element of compulsion including on requisition or compulsory acquisition or in a similar manner.
Section 7. Residence: individuals.
(1) For the purposes of this Act, an individual is resident in Malaysia for the basis year for a particular year of assessment if-
(a) he is in Malaysia in that basis year for a period or periods amounting in all to one hundred and eighty-two days or more;
(b) he is in Malaysia in that basis year for a period of less than one hundred and eighty-two days and that period is linked by or to another period of one hundred and eighty two or more consecutive days (hereinafter referred to in this paragraph as such period) throughout which he is in Malaysia in the basis year for the year of assessment immediately preceding that particular year of assessment or in that basis year for the year of assessment immediately following that particular year of assessment:
Provided that any temporary absence from Malaysia –
(i) connected with his service in Malaysia and owing to service matters or attending conferences or seminars or study abroad;
(ii) owing to ill-health involving himself or a member of his immediate family; and
(iii) in respect of social visits not exceeding fourteen days in the aggregate,
shall be taken to form part of such period or that period, as the case may be, if he is in Malaysia immediately prior to and after that temporary absence;
(c) he is in Malaysia in that basis year for a period or periods amounting in all to ninety days or more, having been with respect to each of any three of the basis years for the four years of assessment immediately preceding that particular year of assessment either-
(i) resident in Malaysia within the meaning of this Act for the basis year in question; or
(ii) in Malaysia for a period or periods amounting in all to ninety days or more in the basis year in question; or
(d) he is resident in Malaysia within the meaning of this Act for the basis year for the year of assessment following that particular year of assessment, having been so resident for each of the basis years for the three years of assessment immediately preceding that particular year of assessment.
(1A) For the purposes of subsection (1), an individual shall be deemed to be in Malaysia for a day if he is present in Malaysia for part or parts of that day and in ascertaining the period for which he is in Malaysia during any year, any day (within subsection (1)(a) and (c)) for which he is in Malaysia shall be taken into account whether or not that day forms part of a continuous period of days during which he is in Malaysia.
(1B) Notwithstanding subsection (1), where a person who is a citizen and-
(a) is employed in the public services or service of a statutory authority; and
(b) is not in Malaysia at any day in the basis year for that particular year of assessment by reason of-
(i) having and exercising his employment outside Malaysia; or
(ii) attending any course of study in any institution or professional body outside Malaysia which is fully-sponsored by the employer,
he is deemed to be a resident for the basis year for that particular year of assessment and for any subsequent basis years when he is not in Malaysia.
Schedule 6 (Section 127): Exemption From Tax
33. Income of any person not resident in Malaysia for the basis year for a year of assessment, in respect of interest derived from Malaysia (other than such interest accruing to a place of business in Malaysia of such person) and paid or credited by any person (whether the same person or not) carrying on the business of banking or finance in Malaysia and licensed under the Banking and Finance Institutions Act 1989 or the Islamic Bank Act 1983, or by any other institution approved by the minister:
Provided that the exemption under this paragraph shall not apply to interest paid or credited on funds required for the purposes of maintaining net working funds as prescribed by the Central Bank of Malaysia in pursuance of section 37 of the Banking and Finance Institutions Act 1989 and subsection 5(2) of the Islamic Bank Act 1983, as the case may be.
33A. Interest paid or credited to any company not resident in Malaysia, other than such interest accruing to a place of business in Malaysia of such company-
(a) in respect of securities issued by the Government; or
(b) in respect of Islamic securities or debenture issued in Ringgit Malaysia, other than convertible loan stock, approved by the Securities Commission.
33B. Interest paid or credited to any person in respect of Islamic securities originating from Malaysia, other than convertible loan stock-
(a) issued in any currency other than Ringgit; and
(b) approved by the Securities Commission or the Labuan Offshore Financial Services Authority