Media Statement by Dr. Ong Kian Ming, Member of Parliament for Bangi and Assistant Political Education Director for the Democratic Action Party (DAP) on the 5th of January 2022

Don’t be fooled into thinking that Najib and Zahid have the best interests of EPF members at heart

The time was June 2015. The event was the Annual General Meeting (AGM) of Felda Global Ventures (FGV). The Employee’s Provident Fund (EPF), with a 5% stake in FGV, voiced out serious concerns against the proposed takeover of Eagle High Point (EHP), an Indonesian plantation company owned by a close friend of then Prime Minister, Najib Razak, at an inflated premium of 70%. The deal was pushed through by the then FGV CEO, no doubt with the approval of Najib, at a cost of RM2.3 billion. In 2019, FELDA Director General, Dr. Othman Omar, lodged a police report claiming that FELDA was cheated in the purchase of EHP with an inflated price of more than 300%!

Fast forward to November 2021, Najib Razak is continuing his calls to allow EPF contributors to withdraw another RM10,000 from their accounts for “one final time” via the I-Citra facility. He has repeated these calls at the end of December 2021 and recently, in January 2022, using the recent floods in the country as a reason.

The fact that Najib made his call in November for more EPF withdrawals, right after EPF revealed that 3.6 million account holders have less than RM1000 in their accounts, out of which 2 million are Bumiputera members (55%) is an indication that he is not thinking of the long-term interests of EPF contributors, including the Bumiputera community. Instead, he is resorting to increasing populist and financially irresponsible ways of appealing to the public, thinking that he can fool them into believing him and his “Apa malu bossku” rhetoric.

UMNO President, Dr. Zahid Hamidi, is following a similar tactic by calling for EPF withdrawals to continue, back in December 2021.

Najib has shown that he only has the interests of himself and his cronies and NOT the interest of EPF and its members when he approved the purchase of Eagle High Point (EHP) by FGV back in 2015 / 2016 at a grossly inflated value.

Both Najib and Zahid are more concerned about saving themselves from going to jail as a result of the corruption charges against them than to helping the rakyat who are suffering. I would not be surprised if they resort to more and more populist measures to fool the rakyat into thinking that they trying to save the people but in reality, it’s all about trying to save themselves. I sincerely hope that the rakyat won’t be fooled by the popularity stunts of Najib and Zahid. I hope that within the UMNO leadership, more reasonable voices can come out to share concerns about these repeated calls for the rakyat to dip into their own EPF savings which would have serious long term personal implications, especially for those contributors in the B40 community who will have very little left in their EPF accounts when they retire.

1 https://www.theedgemarkets.com/article/epf-opposes-fgv%E2%80%99s-stake-buy-eagle-high
2 https://www.theedgemarkets.com/article/felda-was-cheated-eagle-high-purchase-says-director-general
3 https://www.theedgemarkets.com/article/najib-proposes-maximum-wirthdrawal-epf-icitra-be-raised-rm10000
4 https://www.freemalaysiatoday.com/category/nation/2022/01/04/heres-why-i-support-one-more-i-citra-epf-withdrawal-says-najib/
5 https://www.kwsp.gov.my/-/epf-focused-on-rebuilding-members-retirement-savings-following-exceptional-withdrawal-facilities
6 https://www.freemalaysiatoday.com/category/nation/2021/12/14/with-moratorium-set-to-end-zahid-calls-for-continuation-of-i-citrawithdrawals/

Media Statement by Dr. Ong Kian Ming, Member of Parliament for Bangi and Assistant Political Education Director for the Democratic Action Party (DAP) on the 14th of December 2021

The withdrawal of the tax exemption on Foreign Sourced Income (FSI) starting on the 1st of January 2022 may end up backfiring with unintended negative consequences

Later today, the Finance Bill 2021 will be debated in parliament. This bill proposed amendments to a number of financial acts including the Income Tax Act 1967 where the tax exemption on Foreign Sourced Income (FSI) which has been in place since 2004 will be withdrawn. While we understand and support the need for the Federal Government to increase its revenue resources, especially during these challenging economic times, the methods by which this revenue is raised must be fair, sustainable, and not harmful to the economy in the long run. Unfortunately, the decision to withdraw this tax exemption may end up being a counterproductive move as the revenue it raises from Malaysia
companies and individuals may not be significant and more importantly, it will provide negative incentives for Malaysian companies to move and keep their profits abroad and for Malaysians to invest in assets overseas rather than to bring these much needed funds into the country.

Let me illustrate with a few examples. Malaysian company – M – which has incorporated subsidiaries in other ASEAN countries is considering bringing back some of its profits earned from its successful overseas operations to invest and grow its Malaysian operations by expanding the number of employees, purchasing more IT equipment, and moving into a larger office space. If this profit will be taxed in Malaysia, then company M may have second thoughts about expanding its operations in Malaysia and may instead choose to invest its profits in one of its overseas subsidiaries with a more tax friendly environment. Or it may just choose to park its overseas profits in Singapore where foreign sourced dividends, branch profits, and service income are not subject to income tax.1 Over time, this
company may eventually choose to move its headquarters to Singapore to enjoy the tax incentives and government grants available there, similar to what happened to GRAB, which was recently listed in NASDAQ in New York.

A Malaysian individual – K – is a Johorean with a high paying job in Singapore. He lives and works in Singapore, but the rest of his family stays in Johor Bahru. He sends a significant portion of his income every month back to Malaysia to pay his various loan instalments and to support his immediate and extended family. With the withdrawal of the tax exemption on his income earned in Singapore, all of the remittances which he sends back to Johor will be taxed by the Malaysian government. Given this, he will reduce the amount of money he sends back to Malaysia to his family. He may even consider selling his property in JB and use the proceeds to invest in property in Singapore (he is currently renting) and consider asking his family to move to Singapore. In addition, he is aware that after he reaches
retirement age in Singapore and can withdraw his savings from the Central Provident Fund (CPF, which is Singapore’s equivalent of our EPF), these savings will be subject to income tax if he brings any of it back to Malaysia. The withdrawal of the tax exemption gives him reason to retire in Singapore or some other country where his savings will not be taxed. He may even end up giving up his Malaysian citizenship because non-residents who may want to bring money into Malaysia are not subject to the same income tax considerations as Malaysians.

A Malaysian company or individual – L – is a sophisticated and larger investor in fixed assets such as property in different locations across the globe. L collect rental income from his property investments and in the past, some of this rental income would be brought back to Malaysia for investments into the real estate sector and in the stock market and also to spend on goods and services back home.

With the withdrawal of this tax exemption, L will significantly reduce the amount of income that is brought back to Malaysia and instead keep this income overseas. The result is that there will be fewer investments in Malaysia in the property sector as well as in our financial markets. The country will also lose out from reduced consumption because the money that was previously spent on goods and services in Malaysia will now be spent overseas.

With the withdrawal of this tax exemption, L will significantly reduce the amount of income that is brought back to Malaysia and instead keep this income overseas. The result is that there will be fewer investments in Malaysia in the property sector as well as in our financial markets. The country will also lose out from reduced consumption because the money that was previously spent on goods and services in Malaysia will now be spent overseas.

There are many other unintended negative consequences related to the withdrawal of this tax exemption which the policy makers, including the Minister of Finance and his colleagues at the Ministry, are not aware of at this moment. But many tax consultants and those in the financial services sector are already expressing their concerns over the withdrawal of this tax exemption.2 Based on my experience as Deputy Minister at MITI, I am sure that some foreign investors are also watching the development of this issue
very closely in case, there are some unintended consequences that affect their operations in Malaysia.

Please do not misunderstand my position on this issue as a position to side rich individuals and large companies with foreign income sources. The fact of the matter is that these individuals and companies have the means and resources to adjust their financial assets and business operations to their own advantage, which is a perfectly natural thing to do. The consequences are that the anticipated increase in revenue expected by the Ministry of Finance may not necessarily be realized, and the other areas of the economy are negatively impacted including the asset management sector (unit trusts with foreign income sources will be taxed), the local property sector (because of reduced property purchases), the retail sector (because of lower consumer spending) and reinvestment into the local operations of Malaysian companies with overseas branches, just to name a few.

It is not too late to withdraw the part of the Finance Bill 2021 which involves the removal of the tax exemption on Foreign Source Income in the proposed amendment to the Income Tax Act 1967. We hope that the Minister will consider the various viewpoints from Members of Parliament as well as from the industry on this specific issue.

1 https://www.iras.gov.sg/taxes/corporate-income-tax/income-deductions-for companies/companies-receiving-foreign-income

2 https://www.theedgemarkets.com/article/cover-story-taxing-foreignsourced-income-step-too-far and https://themalaysianreserve.com/2021/11/15/foreign-sourced-income-should-be-exempted-from-tax/