Funding a foreign agenda

IN the midst of all the talk about integrity and democracy in Malaysia, a practice which is of tremendous significance to both has not received the attention it deserves. This is the funding of political parties.

Political parties are not keen on detailed scrutiny of their funding since it does not serve their interests.

Politically inclined NGOs have also not championed this cause partly because many of them are aligned to either the Government or the opposition.

And yet this is one area where there is an imperative need for greater accountability, transparency and honesty.

In this regard, the Malaysian parliament took an important step forward in April 2012 by accepting the proposal from a parliamentary select committee to allocate funds to political parties based on the quantum of seats secured by a party in the general election.

If political parties draw their funds from an independent public institution directly responsible to parliament and the state assemblies, the scope for electoral corruption may be reduced.

Wealthy individuals and corporations may not be in a position to influence elections and politics.

However, public funding of party and electoral politics need not preclude private financing of political party activities provided it is governed by strict rules of accountability and disclosure.

To ensure accountability, it may be necessary to register political parties under a separate law.

At the moment, they are governed by the Societies Act which covers a whole spectrum of civil society entities.

A law that is specific to political parties will also help to define their roles and responsibilities – including how they are funded – in a more transparent manner.

This has become even more urgent today because the forces that shape the role of a political party and its electoral performance are no longer confined to the domestic arena.

There are actors beyond our shores who have no qualms about sticking their noses into our politics.

Sometimes their local clients invite them to interfere in our affairs.

I had a taste of this in 1999 when I was deputy president of an opposition party, Parti Keadilan Nasional, now Parti Keadilan Rakyat.

A few weeks before the 1999 general election an emissary of the currency speculator, George Soros, came to see me in my office in Petaling Jaya about an alleged request from the de facto leader of Keadilan for funding for the party in the elections.

Apparently, the de facto leader’s trusted aide had got in touch with media mogul, Rupert Murdoch, on his boss’ behalf, about financial assistance for the party.

Murdoch in turn had passed on the request to his friend, Soros, who had sent the emissary on his behalf.

I told the emissary that Keadilan will not accept funds from foreign sources and there was no question of Soros or anyone else funding the party’s election campaign.

That evening I informed the party president about what had transpired at my meeting with Soros’s emissary and requested her to find out from the de facto leader, her husband (who was then in prison), whether there was any truth in what the emissary had conveyed to me.

According to the party president, the de facto leader had denied any knowledge of a request to Murdoch for funding and Soros’ involvement. I believed him and let the matter rest.

However, since 1999 a lot of evidence has emerged of funds from Soros’ outfits being channelled to organisations affiliated to, and associated with, the de facto leader and Keadilan.

A former Keadilan Youth leader has even sworn in the National Mosque that the party has received foreign funds.

In July 2011, a leader of Bersih, the coalition for clean and fair elections, admitted that her organisation had received money from Soros’ Open Society Institute (OSI) and the National Democratic Institute (NDI) which is funded by the US National Endowment for Democracy (NED).

There is no need to emphasise here that Soros and the NED have been hyperactive in numerous countries in almost every continent, in the pretext of promoting human rights and democracy when their real goal is the furtherance of the US foreign policy agenda.

 The NED for instance established in 1983 which operates in more than 90 countries has been rightly described by William Blum, a former US State Department official and author of Rogue State and Killing Hope as a “Trojan Horse.”

He observes that the NED does “overtly what the CIA had been doing covertly for decades, and thus, hopefully, eliminate the stigma associated with CIA covert activities.”

The NED “meddles in the internal affairs of foreign countries by supplying funds, technical know-how, training, educational materials, computers, fax machines, copiers, automobiles and so on, to selected political groups, civic organisations, labour unions, dissident movements, student groups, book publishers, newspapers, other media, etc.”

In the last 10 years or so the NED has carried out many of these activities in collaboration with the type of groups mentioned by Blum here in Malaysia.

Why is the NED which is funded entirely by the US government playing this game in Malaysia when the Malaysian Government, especially in the last few years, has gone out of its way to foster closer ties with the US?

In spite of the increasingly warm relations, there are elements in our foreign policy which do not blend with US interests.

On the question of Israel and the struggle of the Palestinian people, Prime Minister Datuk Seri Najib Tun Razak continues to adhere to the principled policy of his predecessors.

He is not prepared to express concern for Israel’s “security,” unlike the leader of the Opposition who knows that “security” is the code-word that the Israeli elite and their supporters in the US and the West look for in assessing a leader’s attitude to Israel.

Neither has Najib shown any inclination to endorse the US agenda of containing China which in the context of East Asia is undoubtedly the US’ central preoccupation.

As the US projects itself as the pivot of the Asia-Pacific and, in the process, attempts to curb Chinese influence in the region, it wants to be absolutely certain that it has allies and not just friends in Asean.

And who can be a better ally than someone who not only sits on panels funded by the NED and Soros outfits but has also, over the years, developed strong ties with powerful personalities and lobbies at the very core of the ‘deep state’ in the US – the deep state that actually determines the direction of US foreign policy, regardless of who lives in the White House?

These are some of the fundamental issues that Malaysians should try to understand as they attempt to make sense of the Malaysian political landscape on the eve of the 13th general election.

For in the ultimate analysis what is at stake is our dignity as an independent and sovereign nation.
Protecting that dignity is part of the mission of Yayasan 1Malaysia.

DR CHANDRA MUZAFFAR Chairman, Board of Trustees
Yayasan 1Malaysia

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Falling foul of the tax law

Many tax offences arise due to failure to correctly discharge filing obligation

MOST of us would not ever think of cheating when we file our tax returns. This does not however mean that one cannot fall foul of the tax law. This is in part due to the fact that tax laws generally are amongst the most complex of a country's set of laws, and our own tax law is no exception.

Often it is not the complexity of the law that catches one out but simple failure to follow procedures, the most common of which involves keeping to set time frames, whether in the filing of returns, paying of one's taxes or providing information to the tax man.

Thus the instances when one can be in breach of the tax law are quite varied and extensive. All such breaches are serious offences, some more serious than others.

Our tax law adopts the declaratory system one is required to declare income via the filing of returns to the tax authority. Many tax offences arise due to failure to correctly discharge this filing obligation.

The most obvious offence is not filing a tax return, or not filing within the stipulated time frame.

An Inland Revenue Board officer helping taxpayers filing their submission

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In filing the return, an offence is committed if the return filed is incorrect. A return would typically be incorrect if income is omitted or a lesser than actual sum is included. Likewise, more deductions claimed than one is entitled to would result in incorrect filing.

An innocent mistake may not be regarded as cheating but it is still an offence especially when it results in less tax being charged. Generally the severity of penalties varies with the level of the offence's blameworthiness.

An offence involving willful intent to defraud would be amongst the most serious, bringing about the prospect of imprisonment if convicted. Details of the range of penalties for various offences are listed on the official website of the Inland Revenue Board (www.hasil.org.my).

An offence of “not taking reasonable care” was introduced with the implementation of the self-assessment system. This is entirely justifiable as the filing of a tax return is in law the making of an assessment on oneself upon which tax becomes payable.

The aim is to ensure that a “degree of care or conscientiousness” is exercised in connection with the preparation and filing of a tax return. It is intended to prevent the adoption of a reckless or careless approach to the task and to penalise any breach where it results in tax underpaid.

Thus with this standard, claiming a deduction for a capital expense would constitute an offence of not taking reasonable care, even where its capital nature is not quite obvious. The law presumes that a reasonable person would seek to determine the true nature of the expense.

The “reasonable care” requirement was also introduced by Australia when it implemented self-assessment some years before we did. Since the standard is derived from the common law on negligence, features of the “reasonable care” standard adopted in Australia should apply equally to the Malaysian provision.

However, a taxpayer who fails to take “reasonable care” under the Malaysian law is liable to prosecution and, if convicted, is liable to a fine of not less than RM2,000 and not more than RM20,000 or to imprisonment for a term not exceeding three years or to both. This is in fact harsher than an offence of willful intent to evade tax.

There seems to be an obvious anomaly here as the offence of failing to take reasonable care does not involve bad intent, what lawyers would term mens rea. Australia treats the offence as amongst the least culpable of tax offences, certainly less so than intentional disregard of taxation law.

A controversy resulting in considerable bemusement arose in Australia recently where its Appeals Tribunal in a tax appeal ruled that a taxpayer in seeking the advice of an accountant had not taken reasonable care; he should have used the services of a lawyer. Understandably, this resulted in consternation and dismay amongst both tax accountants as well as tax lawyers for quite different reasons; the latter over concerns that their numbers are fewer in this specialism.

A further difference is that the Australian law requires both the taxpayer and his advisor to take “reasonable care”, whereas the “reasonable care” standard under Malaysian law applies only to the “person who advises or assist” the taxpayer but not the taxpayer himself. Why this is so is not clear.

The Australian “reasonable care” standard is coupled with the “reasonably arguable case” standard.

Where the law is unclear and there is room for a real and rational difference of position between two views, and the taxpayer adopts the view, which ultimately is seen to be wrong, he would in strictness have made an incorrect return.

In Australia, no penalty is imposed where a “reasonably arguable case” is made out.
This recognises that the intricacies of tax law often does mean that the taxpayer could be forced to take a contentious position, one where the arguments could go either way. If the weight of arguments is fairly balanced, imposing a penalty for taking an incorrect position would seem manifestly unfair.

Our tax authorities do exercise discretion in considering the question of penalties despite the absence of the equivalent Australian standard.

However, this does not detract from the fact that the taxpayer will always prefer to see his right spelled out in the law. On the basis of balance of rights, there seems to be no cogent reason why the “reasonably arguable case” standard should be left out from the Malaysian tax legislation.

Kang Beng Hoe is an executive director of TAXAND MALAYSIA Sdn Bhd.The views expressed do not necessarily represent those of the firm. Readers should seek specific professional advice before acting on the views.

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'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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