This is an enforcement / corruption problem. If the truly rich routinely use their resources and political connections to dodge the inheritance tax, then the correct solution is to fix the enforcement / corruption problem, not to repeal the inheritance tax. That the truly rich will go to such lengths to avoid tax means that it does seriously impact then and constitutes an argument of favor of the inheritance tax, not against it. It is also contradictory for you to argue on the one hand that the rich are resourceful enough to dodge the tax and on the other hand that the inheritance tax does not really apply to them because their wealth is locked in companies as you state below. If the inheritance tax does not apply to them, then they wouldn't need to dodge it, would they?

This is incorrect. Inheritance tax applies to all financial assets and this includes shares in companies. When a parent leaves behind shares in any company to a child, inheritance tax would be imposed on the child based on the value of the shares transferred. You are also incorrect in asserting that inheritance tax applies primarily to the middle classes instead of the rich. Economists generally agree that inheritance tax is the most progressive form of taxation possible, for example:

http://www.policyalmanac.org/economic/arch...tance_tax.shtml

The GST is a regressive tax. As I've previously posted, to be progressive, a tax system must levy a higher effective rate on the rich, not only as an absolute figure, but as a proportion of total income and wealth. The GST is a flat tax on consumption, but because lower income people spend a greater proportion of their income, the effective tax rate on them is higher as a proportion of their income even though of course richer people still pay more in absolute terms.

However, as you note, governments all over the world still love the GST precisely because it is so difficult to dodge compared to other forms of taxes. In Malaysia, this is compounded by the large size of the shadow economy. But to me, this is another form of injustice. Why would the government impose a regressive tax to solve its budget woes when it has yet to go after the unpaid income taxes of tax dodgers?

Economists... who? To me, they are only good in publishing papers that does not contribute to the general well being of the human race. Economists are not scientists and their theories are based on assumptions. The western world have the best schools that produce so call economists and we all know those countries are going broke and guess who is to blame if not the economists.

Anyway, for your information, we did have inheritance/estate tax before but not gift tax. The example I mentioned on shares was to point out that a person who owns company shares from his/her ancestors will be "taxed" when they dispose off assets. I can easily give you another example here in Malaysia where a child can inherit a property and not being tax, i.e. dad buys land under son's name or gives son an asset or cash (1 followed by how many zeroes also can) as a gift out of love (well if one hates his child then I guess child won't be getting anything from dad).

wonkongyew, I blur lah on this progressive or regressive tax mentioned by you, both so called taxes goes to the government and we (economists included) have no control as to how they spend it.

As for capital gain, I have mentioned as to why I think our government abolish capital gain tax. Why do you think the government did so? Guess where and how does EPF dividend money comes from? Impose capital tax and you would see foreign funds disappearing and guess what will happen to our economy.

Anyway, we can talk about this tax and that tax but I think our government won't be imposing any new "taxes" for next few years in view of the political climate which is unstable. But what they will definately do is reduce subsidies and allow increase in TNB rate, Water rate and Plus rate etc etc.

lol..i believe everything exist for a reason...the reason we have businessman as they provide the social function bringing goods from one market to another ..we have banks as they act as financial intermediaries. as such, similarly, the reason economist exist because they are employed and get paid which means the society demands for them. how can you say they did not contribute to well being of human race.

and please do not blame the economist for the countries going broke...even the best possible economic theory will not help if the government does not take proper action due various political consideration...

and come on, let's face it. economic is study of human behavior. theories might no longer work because of change in behaviours of the society as whole.

Actually, it's not necessary so. In fact, bsed on your example, it is more likely to be not taxable due to the long holding period, the disposal will constitute a capital gain subjected to RPGT. We will have to look into the badges of trade to determine if the transaction is income or capital in nature.

Hmmm... it seems to me that imposing inheritance tax is unfair too as income is tax twice. Why not just increase the tax rate of the higher income bracket group if you like to tax the rich more. In developed nations, it will be as high as 50% but there have a very good social programmes in place from that. In Malaysia, highest income bracket group get tax at 27%, if you earn RM500k, approx RM100k will go to tax, pretty alot to me. In Singapore, the tax rate is much lower if im not mistaken. I think you have to also take into consideration the position of our country, whether it is feasible to implement such form of taxes and the implication that comes with it. And if any case, I do not think inheritance tax will be able to replace tax like GST as implied by you.

Whatever the case to be, at the end of the day, taxes are supposed to be used for get general benefit of the public, like having better infrastructure, healthcare, education, transportation system etc. If none of this is taking place, taxes being paid will be wasted IMO.

I agree that some economist are the reason why we are in this shit today. We now have today a monetary system that is build on a foundation that is not sustainable, where usury takes place in the form of interest which results in inflation to a point where it will buble and the weakest in the supply chain will be phased out.

However, I have come to know that not all economist in the west share such a view. May I suggest you to look into Austrian Economics. There are also very critical of US in particular the manner in which they finance their budget deficit.

true, i agree..the existence of capital market is the cause of financial crisis that happens.. but we must also remember, without the existence of capital market and the funds that arises which are used to finance various enterprises, there will not be economic development and the increase of standard of living as we had seen today.

furthermore, why wouldn't it be good for those weakest in supply chain be phased out? those weakest are usually inefficient or their product or services are no longer demanded by the society. phasing them out avoid the wastage of resources. remember, every resources diverted to one function is one less for the others.

Trust me, our IRB will find ways to tax a company for disposable of property/land. If a company sold a piece of land in 1999 when it was a tax free year, IRB will tax you under RGPT and after 1999 it is back to Income Tax. Can't run away from paying taxes, hahaha

Besides the rich paying higher income tax, the rich also tend to pay more taxes when they are alive than others for the same level of service. For example, the super rich tends to buy higher cc cars where they pay exorbitant tax when purchasing it and then higher road tax yearly. A 5000cc car road tax can buy Kancil. But yet their cars still have to go thru pot holes and they get stuck in traffic jams. In US, all pay the same amount for road tax and cars are not taxed like here. The rich also pay higher assessment rate for their bungalows (since their land value would be higher as they would be living in a "upper class" neighbourhood ) which in turns subsidies the cost for providing services to other areas and yet their household rubbish is also collected the same number of times a week as others. One can say this is unfair too.

Dude, this is exactly what I meant by the term "progressive", which I take it that you do not understand. Once again, a progressive tax is s system in which the rich pay a greater proportion of their income and wealth as taxes by virtue of being rich. You are not supposed to get more or better services in return for your higher taxes. In fact, the poor people are supposed to get more and better services than you. This is usually justified on moral grounds. However, from what I understand, you advocate a flat tax and you do not believe that the rich should subsidize the poor. Well, at least you're honest about it.

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Added on July 13, 2010, 11:21 amHigh income taxes is considered a disincentive to work and distorts the labour market. All taxes distort the labour market of course, but it is generally agreed that income taxes are the worst on the score. Consumption taxes are actually the least distorting, but, again, they are regressive. The effects of inheritance taxes on the labour market should be somewhere between consumption taxes and income taxes.

This post has been edited by wankongyew: Jul 13 2010, 11:23 AM

In respect of your first statement - thank you for trying to educate me. But then again does the two words i.e. "progressive tax" has any real world meaning or simply two words put together by some economist? My wife understand the two words "progressive tax" as she is an economist (she claims to be one since she has a economics degree but I respect her because her's is Bachelor of Science, hahaha) whereas I couldn't care less about the so called definition of "progressive tax" as it is of no relevance to me since a richer person "usually" ends up paying more taxes than a person earning/having less no matter how you want to term the tax.

What I realised from your posting is that you make assumptions on what I posted or simply don't know how to interpret the words that I have posted. I did not in any of my post agree or oppose to any form of taxes but merely in all my posts made general comments. In actual fact, I am one of the few paying all kinds of taxes imposed by our government and daily when buying cigarettes So I guess you should thank me for providing you safety and comfort in you life. And I thank you the same if you pay income tax.

I myself do not consider myself rich and in no way did I say that I deserve better service nor against subsidies ( make me wonder now can NEP be termed as a form of subsidy?). I understand and support subsidies as without it this country would be in kayos. Please reread the words I posted. But I must say that I am grateful to the super rich (my bosses) for giving me a job so that I can enjoy life in comfort.

And as for your claim that it is morally correct for poor to get more and better service than the rich when the rich pays for the service, boy which economic school of thought is that! You might as well say that it is morally right to go rob the rich so that a poor will get more than the rich . You are supporting double standards and that's morally wrong

In many other countries, it is exactly these people who probably earn more relative salary than you do.

We could/should have that here too but how many of us would give up foreign labourers for increased cost of living?

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If money is supposingly merely as a means to trade, then supply of money should commensurate with the level of production. Hence, there should not be a problem to provide the required financing in order to allow a business enterprise to grow. There are other alternative better models that are capable of supporting economic development and a better standard of living.

You're very right indeed. However, if the goal of every economist is to make the economy free of inflation, deflation, bankruptcy, loss of currency value and all other problems that we are currently facing, then our current model will never be able to achieve that for a simple reason, it is mathematically impossible.

Also, talking about wastage of resources, our current economic model isn't exactly efficient either. Having said that, it's was never build with that purpose on mind either. In fact, it is supposed to be the exact opposite.

If the IRB raise an assessment against you on your disposal of land, just appeal to the SC then, you will have a very strong case. There is actually a landmark case on that transaction that you've just mentioned and the court ruled in favour of the tax payer.

I'm just surprised that with the knowledge that you have, you consider it feasible for us to implement inheritance taxes as a solution which you rank higher than GST, taking into consideration the many possible ways for tax avoidance through careful tax planning too. But again, each has their opinion.

wankongyew has the brains of an idiot. Is no one else able to tell this?

Comments like no inheritence tax makes the rich richer is just mind bogglingly stupid. Like edyek has said, if such taxes were implement, money would simply shift overseas.

Any argument that tries to put this into "moral grounds" is just pure hypocrisy, why don't u sell ur home and build a charity house, and then dedicate ur entire life to taking care of the disabled.

The whole idea is that the rich somehow owes the rest of the population a living. The reality is that most of these people got rich by building businesses that provide a productive service to people, as well as creating jobs for the community. If you plan on punishing the rich on taxes, then they will either find a way around it, or they will move away. Neither is good for this country.

The key problem all is and will be the bias and racist policies of the government. All this talk of taxes/ inheritence taxes is all bullshit. The problem is hard to pin down, and if there is any problem it is negligable.

I do believe that economics are relevant to the real world and I do believe that defining terms with mathematical precision is important in order to avoid talking past each other. I understand that you are more casual in your approach to this discussion, but to me, it is pointless to put effort into any discussion unless all terms used are explicitly defined and understood by everyone.

Economics is not about morality and therefore this is not anything that is taught by any economic school of thought. Economics is about efficiency. Morality is traditionally the domain of religion and while I'm not religious, I think you would be hard pressed to find any mainstream religion that does not mandate that it is morally good for the rich to sacrifice for the poor. This is, however, off topic.

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Added on July 14, 2010, 10:34 amYou are correct. Given the current state of the country's institutions and the extent of corruption, it is currently unfeasible to implement inheritance taxes in Malaysia. My comments were intended more for long-term planning than short-term solutions. Good government institutions with high integrity and low corruption are things that are naturally good to have in any case. But as I mentioned in my post on the second page of this thread and as the moderator has suggested, this thread should not be about how good or bad the government is or how corrupted the country is. It should be about whether or not inheritance taxes are a good idea in general.

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Added on July 14, 2010, 10:56 amI'm not interested in personal charity. That's all well and good but charity is flighty, unpredictable and ultimately unsustainable. The intent should be to create a stable, sustainable, efficient and just system. Growing economic disparity may be "fair", but it is not stable or sustainable for example. Extremely large generational transfers of wealth leads to a class of aristocratic elites with commensurate political influence and this ultimately harms the democratic foundations of society as well as the meritocratic values that so many in this forum seem to cherish. Inheritance taxes are only one of the many elements required, but I believe it to be an essential one.

Once again, this is off topic, but I find it hilarious that while I am perceived to be arguing in favour of a leftist position here, at the same time, I'm arguing in favor of a capitalist position on an American political forum (basically I oppose minimum wage laws). I want to assure you that I am not trolling and that I am sincerely arguing positions that are genuinely my views. I am just amused to find that the consensus here seems to be so far to the right compared to what I see in the Americans (few Americans would dare to say that the rich has absolutely no obligation to help the poor, for example). I guess it is just the Finance & Investment forum and that I would be likely to see less rightist views in Kopitiam for example.

This post has been edited by wankongyew: Jul 14 2010, 10:57 AM

no one said about punishing the rich. it's just that the argument is since the rich has earn more money and this is with the use of country's national infrastructure although i'm not denying that is also due to their hard work and brains, they sure contribute more to the national coffer.

btw, whatever policies that are implemented, the people allow it. we the silent majority has condone it for too long. why blame the machinery (aka government) when the inventor ( people) do nth about it. anyway..this is not a political thread..just my opinion though.

btw, all your shifting of money have no meaning if there are proper enforcement. Income Tax Act has a provision whereby the director general cna use his discretion to ignore a tax planning mechanism and apply the income tax as if the tax planning structure has taken place.

Shifting your money overseas will not help if such tax is in place and provided there is a law similar to the one in USA. Just ask the Americans.

Incidentally, just in case anyone is curious, Americans are liable for US income tax even if they live and work in other countries unless of course their country of residence has a tax treaty with the US. The IRS is quite aggressive in going after this money too. I just pointed this out as an example that when there is a will, there is a way.

If Malaysia really implement inheritance tax and there is no way to avoid it, I will try to pay as minimal as possible.

So how about giving us some mathematical model(s) that support your claims on inheritance tax and the so called definition on "progressive tax".

What you said is exactly correct in the first statement above and therefore why did you mention about morals when replying my quote on the subject of subsidies?

You claim you're not religious and yet you said it is morally correct to give more to one group than the other. And as far as I know, most religions advocate equality and encourage charity but never imposed on its followers to take from the rich so that the poor will have more than the rich. Therefore you may think you're an expert on economics but please refrain from commenting on religion and moral issues here.

I am personally aware of rich Chinese (of taoist faith and Christians) who contribute ( or as you term it sacrifice which is inappropriate as no mainstream religion impose on its followers to sacrifice for others ) a lot of their time and money and those who can't afford to contribute money, they contribute their time and energy to their place of worship for all to use regardless of their social standing. Therefore it is inappropriate for one to link the poor or rich or whomever to religious issues.

In every community here in Malaysia, you will find that the local Chinese businessmen contribute a lot of their wealth to schools (for the benefit of all races) and therefore the rich in this country have been and will continue to contribute to society regardless of whatever tax that may be imposed. That's true progressive action (new defination by yours truly ) by the rich that is not subjected to government misuse.

wankongyew, I do think you are smart (but too assumptious) and would like you to answer the question thrown to you earlier as to why you think our government abolished Capital Gain Tax. Are you a Malaysian in the first place?

Gen-X,

1) Chinese donated BILLIONS every year to keep the 90+% privately funded schools operating. And, those schools are OPEN for every races.

2) Chinese contributed 80% of the income tax of this country.

3) Meanwhile, the TAX PAYER funded schools like MRSM and UiTM are 90+% and not open to EVERY RACES.

If we want to talk about MORALITY, we should say that GOVERNMENT should take LESS MONEY from Chinese. Chinese had done more than enough for this country. Other group should do their part too.

Dreamer

wait a minute..are u sure the capital gain tax is abolished? i am under the impression that government have reintroduced real property capital gain tax recently? and i have just read the acccountants magazine

^You are correct. RPGT was never abolished but exempted when the recession came. It was reintroduced a few months back.