I refrained from posting further in this thread because I felt that it was becoming more political and hence might be viewed as something more appropriate for Real World Issues. However, since a moderator has deigned to participate, I suppose it has the LYN Seal of Approval and therefore it is safe. As expected, most of the posters in this forum object to the imposition of inheritance and gift taxes (the two of them go hand in hand, it would silly to impose one without the other for obvious reasons). I will try to address your arguments is a fair and reasonable manner. Generally, as I see it, there are two main lines of argument:

1. The Malaysian government would waste the additional income anyway.

This is a facile argument that I am tired of encountering again and again. The main problem is that it is a general catch-all that can apply all too readily to oppose anything and everything undertaken by the Malaysian government. Why even pay any income tax at all if this is genuinely your position? Why pay sales taxes? Why not simply insist that the Malaysian government provide all manner of free goods and services to citizens since the powers-that-be have so obviously stashed so much money in their socks? Why not come right out and advocate armed rebellion?

While I am certainly no fan of the government and I acknowledge that our government works very poorly, I, for one, am glad that we do have a government. We may not have the kind of government that we would prefer, but at least, we're not Somalia, or Zimbabwe, or Afghanistan. I appreciate that the government has provided me with essential services that I do make use of. I went to a government-funded primary school and while I wished that the government gave more money to the Chinese independent secondary school that I later went to, I'm pretty sure that they did get some government funding. Similarly, my wife is schizophrenic and regularly collects medicine for her condition for free from a government hospital. I can cite many, many more examples but I think you all get what I mean. All of this costs money and that money has to come from somewhere.

Secondly, this line of argument seems to assume that such policies take place in a vacuum and that everything is a simple either-or proposition. Instead of saying, "I oppose inheritance taxes because I am convinced that the government would only waste the money anyway", wouldn't it be more constructive to say, "I support inheritance taxes but only on the condition that the funds raised be used to lower income tax rates and to prevent the imposition of a general sales tax." You are also perfectly free to state something like, "I support inheritance taxes in principle but I do not trust any BN-led government to administer them and therefore I advocate delaying rolling them out until after the BN is out of power."

This discussion should be about the merits and flaws of inheritance taxes itself, not about the corruptness of the government administering it. Pretending otherwise is simply a cheap way of deflecting my argument without really offering any real counter-argument of your own.

2. Inheritance taxes are injust because my money has already been taxed once when I earn it!

First of all, whether you like it or not, double taxation is already a reality. You remember paying sales taxes in restaurants, right? This is going to get worse when the GST comes into being and that's how it works all over the world. Secondly, in Malaysia, it's not necessarily true that your money has already been taxed once, because Malaysia has no capital gains taxes! If you make a fortune by for example trading on the stockmarket, like Datuk Ishak Ismail recently did with Kenmark, you don't need to pay any income taxes on your gains at all and when you leave it all to your spoiled brats, they don't need to pay any inheritance taxes at all. Win-win! This is why Malaysia is a great country for capitalists. In fact, in countries that do have a capital gains tax, this is one major argument in favor of inheritance taxes, Without them, there would be a tax loophole when the capital gains are never realized when the original owner is alive and therefore never taxed.

But most importantly of all, arguing about the principle of double taxation is ultimately a pointless distraction. I can for example satisfy your desire to not have double taxation at all and still raise sufficient money for the state by arbitrarily raising one type of tax to ridiculous levels. For example, I could agree not to have inheritance taxes or sales taxes at all but in exchange I would raise income tax rates to, say, 70%? Would that make you happy? This is why when discussing taxes, you abandon silly talk about whether or not double taxation is right in principle. Instead, you pay attention to overall tax burdens after all of the different types of taxes are taken into account.

Given that we need a government, and given that governments need taxes to function, and given that we must distribute that tax burden across the entire population, most people agree that the best solution would be to impose progressive taxes. This is the principle that the rich should pay more taxes, not just as an absolute figure, but as a proportion of their wealth and income, than the poor. And it turns out that inheritance taxes are generally found to be the single most progressive tax possible.

Anyway, I have more to say about actual implementation details and why it's silly for middle-class people to oppose inheritance taxes, but that's all the energy I have for today.

I respect your views. In a clean, or reasonably clean government, more people will agree with inheritance tax. However, when the other opposite happens, most people will be reluctant to pay additional taxes, eg GST, inheritance and gift tax etc. Theoretically inheritance tax is reasonable but looking at our government wastage, i will very reluctant to pay. I am just being very practical.

This post has been edited by newbie99: Jul 9 2010, 12:36 PM

wow..well said!!! Most general public always shun tax giving the lame excuse that our government is ineffective. Somehow, I strongly believe they will not pay tax even if our government is as effective as Singapore's. People who drive BMW often complaint about tax without even realising that without tax money, there will not be road for them to drive their BMW.

Btw, it is also paramount for the general public to understand that just because they work hard and earn a lot of money doesn't mean that their children should be allowed to inherit all the wealth without working at all. The existence of a inheritence tax will effectively reduce the offspring of those rich people who will live off the inheritence. This will increase national productivity. Remember, a currency is only as valuable as the goods it can buy.

Furthermore, for those who said they became rich only by their hard work, do u think u cna achieve ur status if not for the existence of the right infrastructure. government school which gives at least the basic education , political stability which create business and jobs,etc..

So the BMW drivers pay their taxes for building the roads. Then the roads are also used by people who did not pay or pay very little taxes. Did those people realise they are using roads they haven't paid for?
It's their money, they earned it. So why not? It's not your money, so on what basis do you have to right to say what other people should or should not do with their money?
Big jump in logic there. So people with lots of money will be very unproductive. Simple solution to this, just tax everybody until they scream, and productivity will shoot through the roof.
Ok then, don't work hard. So the govt will collect very little taxes and all the country's problems will be solved.

Regards,
-Devils' advocate

Frankly speaking, I will oppose those inheritance tax. What I earn is what I suppose to earn.

Whether I will end up giving it to charity or my children, it should not be taxed at all. If I ever give it to my children and one day Msia implement this tax, I will definitely move all my wealth to those tax haven and get a PR.

You guys realize that this is just a psychological tic, right? I mean, if you oppose inheritance taxes because it's your money and you think the government has no right to it, then logically, you should also oppose income taxes because what right does the government have to money that you've earned through your efforts? The only difference is that because you think of income taxes as being deducted before you get the rest of your income, so only the balance that reaches your hands feels like it's really your money. But for inheritance taxes, it feels like the money has already reached your hands and has stayed there for some time, then it feels wrong to you that you have to give some of it back when the government asks for it later.

Again, this feeling of wrongness is merely because we're psychologically conditioned to grudgingly accept that only the net money, after all statutory deductions and taxes, is really ours (when in fact, all of it is really ours) and to vehemently reject giving back money once we're grown used to the idea that it is ours. But logically, if the government has a moral and legal claim on your income when it is being received, then the government can also have a moral and legal claim on your wealth later if such is deemed to be for the good of society as a whole. The other factor is that we have no experience of living with inheritance taxes so it is an unfamiliar concept that we are instinctively hostile towards.

Deleted.

Dreamer

This post has been edited by dreamer101: Jul 10 2010, 10:55 AM

Please take aside the political issue, whether there is tax or whatever tax, we shouldn't take in political issue, or wastage issue. This is another front, which is more political.
Here, we would like to discuss about finance part of story.

Remember chicken and egg issue on building management maintenance fee.
People claim apartment being not well managed and refuse to pay maintenance fee. Without maintenance fee, how can a building can be well managed.
Tax is a commitment and part of our capitalism world, which is inevitable. Just how well the tax being structure and seems fair across. <-- which is what we want to discuss here. Whether how the tax money is used, it is another front, which should be in RWI.

Inheritance tax won't affect individual that earn the money, so double taxation issue is not there to start with or their problem. So the claim of double taxation is weak actually, no offence.
Large amount of money made by rich actually be come from capital gain, which is tax free. While if their children is inherit those money, they (the rich one) might contribute minimal tax as compared to ordinary middle class people.
The ideal tax system, is the more you earn, the more you pay.
So, in this issue, somehow, not quite right already.

Also, whether I or you suppport or oppose doesn't affect we directly, unless you/we will be inherit large sum of money afterwards.
It is the beneficier issue aka their or our children specifically.

Inheritance tax impose on certain amount the exceed the threshold like x million, sounds good on paper, but it opens up loopholes to be abused for sure.

This post has been edited by cherroy: Jul 10 2010, 11:34 AM

You are missing the essential points.

One already pays tax based on income. The higher the income bracket, the more tax you pay. You pay this throughout your earning life. On top of this, you pay another layer of tax because you have earned and saved all the money. You could easily not bother to save or not bother to work to earn that much in the first place, and not pay a cent of inheritance tax. Those are facts. What one "feels" is irrelevant.

The practical reality is you pay taxes because it pays for all those government services that benefits everyone. The point is about the fairness of the taxation system and how much tax you end up paying, and how much govt services you get in return. The point is never about whether tax money is "really ours" or "not really ours" - those are meaningless phrases.

i assure you most country got inheritence tax including UK.

Malaysia is considered one of the most tax lax countries int he world. In United States, there is income tax for federal, income tax for states and local council not to mention various duties and depending on the states inheritence tax.

And if you said what u earn is what u supposed to earn, why don u move to country like Somalia, whi9ch have no tax at all. Let's see how you can thrive there without any government intervention. It's just the same context where you join a trade union and benefit from the collective infrastructure, you have to pay for it. it's that simple.

But as above my post, you are not going to be taxed again, it is your children or beneficier pay the tax, when they inherit it.

why must u always insist one paying and getting the equivalent in return. The purpose of taxation is to enable the wealth of the country to enjoy by whole population. Are you saying that just because you are rich and pay lots of tax, the police should only protect you and those poor man can killed wantonly.

How would you feel if you look at a rich man kid which go to private school and the country does not have any public school to go to causing you to forever unable to compete with him.

Public goods such as national defense, public security and education will not exist without tax.

No, that's not what I'm saying. The Police is meant for everyone, not just the rich.

However, let's look at it from another view point. The whole population has a responsibility to contribute to the wealth of the country, and not just sit back and wait to enjoy the wealth that comes from other people's tax money. The focus is what you can do to help the country, and not what other rich people can do to help you.
Irrelevent. The situation does not exist and that's not what I'm advocating.

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Added on July 10, 2010, 12:19 pmThe pool of money it comes from has already been taxed at source, ie income tax.

A bit like company dividends which have already been taxed at source. So when the share holder gets it, the source taxation is taken into account.

Of course, all depends on the actual mechanics of the inheritance tax calculations.


This post has been edited by howszat: Jul 10 2010, 12:19 PM

tThat I highly agreed. However, you must also be made to understand that money does not equal wealth. When government collect tax, at least there is transparency of how much government is taking from us. If government does not collect tax, government could just simply print money which will lower the purchasing power of the money that we have in the bank. it will still be a form of tax.

furthermore, what you are arguing is equity vs effciency which has been one of the longest form of argument in the economic field.

anyway, don't look at the country form a lifetime perspective.you may be rich now and paying tax and the poor may not be and yet both of you still enjoying the same public goods. nevertheless, no one can guarantee the same will be for your descendants. at that time, the poor man's next generation might be rich whereas yours might be not. and at that his descendant will be paying for yours.

tax must never be excessive until those who are lazy can be comfortable. I do not support welfare state like netherlands at all. nevertheless, I advocate the right amount of tax in order to support the education, national defense, security and education. And based on UK government's research, right amount of tax will stimulate productivity. imagine that u have earn like 10000 a month and without tax, you can use it to buy house easily and by the time ur house is fully settled, you will tend to work less and enjoy life. if there is like 30 percent tax, this force u to work for longer years in order to pay ur hse and then only u will retire.

Btw, look at another view point. Inheritence from the parents can be regarded as an earnings to their children. As such, having to tax it is perfectly reasonable. Not to mention is something that they themselves did not work for.

if you are saying that this is double taxation, why don we abolish income tax? aren't the money we earn from doing business is also money from others who they themselves having assesed for tax?

True to what you said.
I'm paying my income tax as minimal as possible as I'm really not happy with all those government moral and legal claim on my income. Therefore I say if Msia implement inheritance tax, I will move my wealth to tax haven. And if I can't move my wealth to anywhere, I will find a way to minimize my inheritance tax.

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Added on July 10, 2010, 1:20 pmI do have my right on my wealth right? You can say I'm wicked/selfish/demon, but still if possible I'm not paying any inheritance taxes. If worst come to worst, I will try to pay as minimal as possible.

Btw, Why should I move to Somalia? There are other countries out there in the world which offers better condition than Somalia. Do I look stupid enough to go to Somalia just because of inheritance tax where by others countriy offering no inheritance tax also?

This post has been edited by edyek: Jul 10 2010, 01:20 PM

i agreed with paying as minimal as possible based on law. Tax planning is encouraged as these is seen as method to improve economic effeciency. Government created tax law in order to influence certain behaviours on the public and responding to such law by implementing tax planning, it is actually good for the country.

And btw, I'm not saying u have no rights on your wealth. i am just saying some1 is wealthy will never be 100 percent due to their hardwork. Certain condusive factors must be in place too.

Furthermore, i believe that this discussion is on the merits and demerits of implementing inheritance tax on society as a whole, not you and your family alone. Inheritence tax as like all tax is merely a form of tax of which to sustain the country's infrastructure. Population is increasing year by year and if the capacity of our infrastructure do not increase, I'm afraid it may not be able to service the population.

And all in all, i feel inheritance tax would be more justifiable than income tax as it is a tax on the receipts which is not related to the hard work the recipients.

I understand this perspective, this is to avoid a person to pay double taxation.
But for inheritance tax, it is different.

A single person only pay once the tax involved.
You earned an income, you pay income tax, then you won't pay it again.
It is your children if inherit your money without a sweat that pay the inheritance tax.

If look from individual perspective when you have an income (in this case, you inherit, still consider an income for those inherit the money), then you only being taxed once.
So, there is no double taxation on individual.

In Malaysia, we don't have capital gain tax which is already a big advantage especially for the rich and wealthy group of people, as capital gain generally is the major source that make people rich.
While when the rich passes the wealth to their children or beneficier, within the whole process, the money/wealth/income is not being taxed once.

Also inheritance tax is not on your but your beneficier of your money, so you as individual won't be affected at all.

Inheritance tax can be better than income tax in term of moral perspetive.

Income, we need to work hard for it, so somehow we feel the pain in paying the tax, as those money is something we work hard for it.
Inherit, you get something without a sweat, doesn't it deserve to be taxed more than income tax?

Malaysia did have inheritance taxes not long ago when Tengku Razaleigh was FM if I am not mistaken.

I guess our government concluded that the rich manage to find a way to go about the inheritance tax and decided to abolish it. I doubt the government would reimpose inheritance tax in the future as it would only affect individuals mostly in the middle class and not the really rich people. If whichever government were to impose it, I assure you we will get a new government comes general election.

As far as Capital Gain Tax, I think our government abolished it in order to attract foreign investment/funds (eg Malaysia as Second Home, Overseas Funds like Credit Suisse Group AG, etc ) as we really need foreign funds as our economy have been going nowhere for more than a decade. Anyway if our government does imposed Capital Gain Tax on shares/mutual funds, I wonder if we working class people would be getting less dividend from EPF.

Also if the government were to reimpose Capital Gain tax for properties, rest assure the property market would be affected and thus our economy. That's why our government did a 180 degree U turn on Property Gain tax last year.

Having said the above, the "rich families" are paying some form of "inheritance & capital gain tax" in the form of income tax. Most rich families are rich not because they have tons of cash but have shares in companies (which are passed to the next generation), and these companies would be paying income tax (which include disposal off their investments/assets and the shareholders which inherited the shares would be getting less). Therefore the abolishment of capital gain tax actually benefits the not so rich hardworking wage earner individuals that are smart enough to invest in whatever they invest in.

As for GST, well I guess it would definitely affect all but the rich would be paying more taxes too as their transactions value are higher. If you ask me, the present tax system is unfair, less than 3.8% of the entire Malaysia Population pays income tax and that includes me. From my point of view, the other 96% of the population of Malaysia is enjoying my hardwork. With GST, all those individuals running illegal businesses/getting corrupt money would also be paying taxes and thus contributing to the "well being" of the country.

Investment and asset disposal still fall under capital gain, which is non-taxable.
It is company operational income subjected to income tax.

So if a wealthy and rich person rich because of shares of company or investment, little tax are paid in between.

Yes, I agree inheritance tax is difficult to carry out, due to a lot of loop hole. On paper looks good only, implementation is not.
Yes, GST can be a better system and fair.

But if the rich earn a lot and not spending, under GST system, they won't pay much tax either, as GST work based on the more you spend, the more you pay the tax.
Some may argue, I only earn merely Rm1500 per month, I still need to pay tax with GST system, while existing income tax system based on income, I don't need to pay the tax at all.
There is no perfect system.

Asset disposal is taxable for an investment companiy. For example say a company bought a piece of land for RM100,000 50 years ago and dispose it for RM10,100,000 today, profit from the sale is 10,000,000.00 which is taxable under income tax. For companies, property gain tax does not apply.