By Sherilyn Goh
Tony Pua
Petaling Jaya Utara Member of Parliament Tony Pua has called for 1Malaysia Development Bhd (1MDB)’s income tax-exempt status to be withdrawn, given that the Ministry of Finance-owned strategic development company has neither achieved its objectives of becoming a ‘strategic enabler’, nor has it attracted tangible ‘foreign direct investment’ for Malaysia’s economy.
He said this in response to Prime Minister Najib Abdul Razak’s written reply yesterday, to a parliamentary question by Kampar MP Dr Ko Chung Sen, which disclosed that 1MDB and its wholly-owned subsidiaries enjoy full income-tax exempt status from the Ministry of Finance for a period of 10 years, in accordance with Section 127(3A) of the Income Tax Act 1967.
Section 127(3A) of the Income Tax Act 1967 states that “The Minister may by statutory order provide that the interest payable on any loan charged on the Consolidated Fund or on a State Consolidated Fund shall be exempt from tax, either generally or in respect of interest payable to persons of a particular class”.
Calling 1MDB’s tax exemption status unjustified, Pua queried: “The question we would like to ask the Finance and Prime Minister is, what is so special about 1MDB that it deserves to be exempted from income tax payments to the government?”
Pua explain that 1MDB – which has only three known business segments which are overseas investments, the energy sector, and real estate development – has yet to contribute to the country in any way, and should therefore not be entitled to the tax exempt status by the Ministry of Finance.
Tax exemption, he argued, is often granted to pioneering or strategic industries which are invested in Malaysia, will help generate employment, transfer technology and become a “strategic enabler” for the economy.
Pua then went on to dispel the sectors of 1MDB’s business and their eligibility for tax exemption.
“1MDB’s energy business were acquired entities, they would still be required to pay income taxes as they rightly should. This is because the power plants businesses were income tax-paying entities, and their acquisition by 1MDB does not in any way add value to their business to justify any income tax exemption,” he said.
Based on the March 2014 financial statements, RM13.4 billion is classified as “available for sales investments” located overseas. The amount, according to Pua, included US$2.318 billion which was invested in a Cayman funds as proceeds from its sale of 1MDB’s investments with Petrosaudi International Ltd.
“The question is, 1MDB boasted that it was able to make profit of US$488 million from its investment with Petrosaudi. Why should 1MDB be exempted from paying income tax on the above amounts?”
Pua explained that 1MDB’s investment with Petrosaudi has brought zero benefit to Malaysia as none of its investments were done locally to spur the domestic economy. This, he argued, is despite the initial announcement by Najib that the 1MDB-Petrosaudi joint venture will “spearhead the flow of foreign direct investments from the Middle East as well as make strategic investments in high-impact projects”.
Should property developers be exempted from taxes too?
1MDB’s active involvement in the real estate sector also does not justify its exemption from paying income taxes, as it is neither a strategic industry, nor does it advance Malaysia’s competitiveness.
Pua argued that Malaysia already boast some of the best property developers in the region, while 1MDB is of no real strategic value to the country’s economy by getting involved.
“If 1MDB can qualify for tax exemption for the property sector, does it mean that all other top property developers should be getting the same benefit as well?
Worse, he added, 1MDB already benefited unfairly from the Government selling prime real estate to the company at bargain basement prices.
1MDB bought its Tun Razak Exchange land from the Federal Government for RM64 per square feet (psf) and has subsequently resold parts of the land at a premium – RM2,770 psf to Tabung Haji, RM4,000 psf to Affin Bank and more recently, RM3,098 psf to WCT Holdings.
“The Malaysian tax-payers have already subsidized 1MDB by selling land to the scandal-ridden company, why should we bear further cost by exempting 1MDB from paying taxes on its income?” asked Pua.
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