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Tax dodging by politicians raises moral concerns, experts say after Panama Papers leak

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by April 8, 2016 General

Earlier this week, Datuk Seri Nazri Aziz dismissed the reports on Malaysians implicated in the ‘Panama Papers’ leak, saying if there were no laws broken, the issue should not ‘be blown out of proportion’. ― Picture by Choo Choy MayEarlier this week, Datuk Seri Nazri Aziz dismissed the reports on Malaysians implicated in the ‘Panama Papers’ leak, saying if there were no laws broken, the issue should not ‘be blown out of proportion’. ― Picture by Choo Choy MayKUALA LUMPUR, April 8 ― Tax mitigation may be ethically wrong for politicians ― despite being legal ― due to their positions as public servants, tax experts said.

Provided that income is legitimately earned, local laws do not prohibit taxpayers from depositing cash in offshore accounts to avoid tax, explained S. Saravana Kumar, a tax lawyer at Lee Hishammudin Allen & Gledhill.

But he said moral concerns existed when politicians partake in the practice, as suspicion of money laundering comes into play, along with questions over the source of such wealth that would make tax mitigation an inviting proposition.

“The law allows it… when rich businessmen do it, then we see at how he got his money. If it’s their hard-earned money, then they can mitigate taxation.

“But the problem starts when politicians or civil servants do it because they cannot be getting that kind of money in the first place unless they had accumulated a large of wealth before entering politics like Donald Trump,” he said.

Earlier this week, Culture and Tourism Minister Datuk Seri Nazri Aziz dismissed the reports on Malaysians implicated in the “Panama Papers” leak, saying if there were no laws broken, the issue should not “be blown out of proportion”.

Umno lawmaker and former minister Tan Sri Tengku Razaleigh Hamzah also said it was acceptable to “save” on taxes via offshore accounts despite acknowledging the ethical issues with the practice. 

But Saravana argued that such practice by government leaders would be above suspicion only if they have already publicly declared their assets.

“If politicians have declared their income domestically and the taxes due, then they may park the money offshore. If they don’t declare or are not transparent with their wealth, because they are public servants, so how can they park money outside the country?” he said.

Dr Veerinderjeet Singh, chairman of tax advisory firm Taxand Malaysia, explained that tax avoidance via offshore accounts was a common practice among wealthy Malaysians.

This practice is also legal as Malaysia has a tax system similar to Singapore and Hong Kong where only domestically derived income can be taxed, Dr Veerinderjeet explained to Malay Mail Online.

But he also concurred that the ethical issues of the practice, particularly by public officials, should at the minimum invite scrutiny by tax authorities.

“The question is why would anyone want to put their money offshore, especially in places like Panama, Bahamas or the Caymans although it’s not wrong at the end of the day,” he said, noting money sent to these locations were not always properly acquired.

“If it has come to the Inland Revenue Board’s attention… then they should at least issue a statement saying they would investigate and look into the accounts and if [they] find anything wrong, [they] will take action,” he said.

The IRB has yet to issue a statement on the matter.

The Panama Papers information leak involves over 11.5 million confidential documents created by Panamanian corporate service provider Mossack Fonseca.

The documents provide detailed information on more than 214,000 offshore companies, the names of their shareholders as well as their directors, which include among them government leaders, their close associates and even close relatives.

Those named in the Panama Papers include individuals from Malaysia, Brazil, China, France, India, Pakistan, the UK, South Africa, Spain, Syria, Russia, Mexico, Argentina and Ukraine.

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