Yep, it is tax free although I believe you still need to pay legal fees and stamp duties when you transfer property from one name to another. In my opinion, it's one of the greatest forms of injustice in Malaysia and allows the rich to get richer, but that's probably a minority opinion, especially in this forum full of rich people.

Lack of inheritance and gift taxes makes it much easier for wealthy families to accumulate wealth and pass it from generation to generation. Legal fees are no substitute. As TarePanda has noted, the costs involved are on a completely different scale. To add insult to injury, Malaysia doesn't even have capital gains taxes.

Please note that I am not a socialist. I consider myself a libertarian. Plus while I do not think of myself as being rich, I do have substantial assets. So imposing these taxes will only hurt me personally, but I support them nevertheless as I consider it justice. I find it particularly unthinkable that Malaysia would consider imposing a GST, a type of tax that disproportionately harms the economic interests of the less well off, while not having any gift and inheritance taxes at all. The irony of the situation is that the truly elite has successfully persuaded the middle classes to side with them instead of the truly poor in such matters.

Also, if you pay attention to other recent threads on this forum, such as the one about how much money you would leave to your children if you were rich, a significant majority also stated that they would pay for their children's education and give them enough money to get started with life but would not give them enough money to be rich. The rest of the money would be given to charity. I have my doubts about how many would actually go through with this if push comes to shove, but the basic reasoning is sound and seeks to achieve the same brand of justice.

This post has been edited by wankongyew: Jul 7 2010, 11:02 AM

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.

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.

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?

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

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

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.

Once again, this is a political issue dealing with the specifics of the current government of Malaysia. The subject of the thread should be about inheritance taxes only, divorced from speculation about whether or not the funds earned from the tax will be put to good use. I'm not going to reply to this or any further statements that tries to tie the subject of inheritances taxes together with the perceived evilness of the government, nor about which race will benefit from the taxes.

I said "mathematically precise definition". I did not in any way refer to mathematical models. In my own words, I also defined a progressive tax as one in which the rich would have to pay more, not only as an absolute sum, but as a proportion of their income and wealth, compared to the poor. This is now the third time that I have posted this definition.

But if you prefer, the following is the definition from Wikipedia:

As for the progressivity of inheritance taxes, there is a wealth of papers on the subject. For example, the following articles talk about the various taxes in effect in the US and their relative progressivity:

From this paper, for example, I quote:

Similarly, from this website, I quote:

I also think that it is odd that charity is used as an argument against inheritance taxes. If anything, the most charitable donors are the ones most in favor of them, for example, from this news article:

But I guess the problem is that in Malaysia everyone wants to talk only about how evil the BN government is, which is not interesting to me because there is nothing new to be found there. But no one wants to talk about policy implementation details which are interesting to me. For example, what do you think the inheritance tax rate should be? What do you think the exemption amount should be? Would you be happier with an inheritance tax instead of the GST? What about lower income tax rates in exchange for a GST? Apart from making it known that I support inheritance taxes, these are the sorts of questions I was originally most interested in talking about. But then I didn't start this thread anyway.

This post has been edited by wankongyew: Jul 15 2010, 11:02 AM

The problem with this approach is that it stifles all debate. Let's take public transport for example. This is another cause that is dear to my heart. I would like to have a comprehensive, well-integrated public transport system in the Klang Valley. I would like such a system to be subsidized as I do not believe that usage fees for public transport alone will cover the cost of the infrastructure and operation. On the other hand, do I trust the current government to implement such a system? I don't think so, given how much investment would be required and how likely the government is to hand these contracts to crony corporations and how prone they are to appoint key managers according to political closeness and familial relationships instead of competence.

But does this mean that I cannot discuss public transport systems at all? Can't we at least talk about an objective to aspire towards, to understand what each of us expects out of the transport network and how it should be paid for? We all know there is little hope of getting it implemented, but surely we can see still talk about what we would like a future government that we do trust to do?

And to add something about inheritance taxes, here's a fun fact regarding the estate tax in the US. Due to a quirk in the tax laws passed by George Bush Jr., there is no estate tax for 2010. However, the tax will come back in 2011 with both a lower exemption threshold and a higher rate.

The result: pundits are predicting that a lot of Americans will kill their parents in 2010.