Financial groups lead the pack
Stephanie Jacob 
Maybank, Tenaga Nasional and Public Bank occupy the top three spots

It is often said that “nothing is certain, except death and taxes”. Whether one likes it or not, paying taxes is generally unavoidable.

When we compiled our list of Bursa Malaysia-listed companies that paid the most taxes in their latest financial years, we found some interesting results – the top 50 contributed a total of RM19.7 bil.

Five financial institutions were in the top 10, namely, Maybank Bhd, Public Bank Bhd, CIMB Group Holdings Bhd, Hong Leong Financial Group Bhd and Hong Leong Bank Bhd. There were 12 financial institutions in the Top 50.

Maybank, the country’s largest bank in terms of market capitalisation, paid the highest tax at RM1.9 bil, representing an effective tax rate of 21.3%.

In third spot was Public Bank. The second-largest banking group paid RM1.29 bil or 19.6% of its pretax profit. CIMB Group was fourth with RM1.26 bil or 25.6% of its earnings.

Utility player Tenaga Nasional Bhd paid the second-highest tax, contributing RM1.4 bil or 16.5% of its full-year earnings.

Genting Bhd rounds up the top five tax payers with RM991.4 mil or 18% of its earnings.

Top 50 Tax Payers

Tabulating corporate taxes is complex as it involves calculating tax payable minus various tax allowances and incentives as provided by tax rules. Our list is by no means definitive as the actual taxes paid are difficult to determine. However, it gives a perspective of how much taxes companies paid as reported in their annual reports or latest unaudited full-year results.

For comparison purposes, we took the income tax expense figure from each company’s latest full-year income statement. This includes taxes paid locally and overseas, as well as deferred taxes where declared. Most companies paid a significant portion of their taxes to the Malaysian taxman.

In Malaysia, companies are required to pay a standard tax rate of 24% on their locally-derived income. According to auditing firm Deloitte Malaysia, taxable income comprises “all earnings derived from Malaysia, including gains or profits from a trade or business, dividends, interest, rents, royalties, premiums or other earnings.” (see box story)


Tax planning

The bulk of the top-five tax payers paid less than the standard 24% tax rate despite having paid-up capital way above RM2.5 mil. Twenty-two of the top 50 companies paid less than the standard rate.

Crowe Horwath KL Sdn Bhd managing director SM Thanneermalai tells FocusM this is not uncommon, although it does not indicate non-compliance with any of the country’s tax laws. He says there are various reasons for some companies to have lower or higher effective tax rates than the standard rate.


‘If you understand tax laws, you will probably do some tax planning,’ 
says Thanneermalai

Firstly, he notes that Malaysia’s tax incentives are generous and companies will use these to lower their tax rates. Secondly, companies with foreign-source incomes are not taxed under the Malaysian tax regime, but pay taxes in the jurisdictions where they generate them.


“The third thing that will distort your position is when you have capital gains, as Malaysia taxes capital gains on only real property. So if you have gained shares or gained on sale of a business, for example, there is no tax,” Thanneermalai adds.

Companies normally undertake tax planning, he explains. “If you understand tax laws, you will probably do some tax planning. This could mean making use of deferrals, for example, or planning how your capital expenditure is spent because you might be able to take advantage of significant tax deductions.”

He points out there are also more sophisticated levels of tax planning where companies may reorganise their business operations to be taxed in overseas jurisdictions. This can be done through things like transfer pricing and other legitimate mechanisms, he adds.


Some companies paid more

Interestingly, 25 of the 50 companies paid above the 24% standard tax rate. Parkson Holdings Bhd paid the highest – a whopping 150% – or RM337.4 mil tax on RM224 mil earnings.

In its annual report, Parkson indicated that its tax was largely on foreign-derived income, including from its China operations.

Not all expenses incurred by companies are tax deductible. Felda Global Ventures Holdings Bhd paid the second-highest percentage of earnings of 73.6% or RM193.8 mil. According to its annual report, it indicated it had RM94 mil in non-tax-deductible expenses, which might explain why it paid at such a high tax rate.

Airport operator Malaysia Airports Holdings Bhd paid a rate of 60% or RM110.2 mil of its earnings to the taxman. Based on its annual report, RM71 mil of its tax bil was also due to non-tax-deductible expenses.


Tax avoidance versus evasion

Recent revelations such as the Paradise Papers expose have highlighted how many companies went to great lengths to try to minimise their tax burdens.

Apple Computer’s recent tax debacle is an example. The computer giant was alleged to be exploiting legal loopholes in different national jurisdictions to minimise its tax obligations. Corporate observers say the company is avoiding tax by utilising tax havens, which means its activities cannot be construed as tax evasion.

“Tax evasion is an illegal act by a taxpayer to evade taxes in several ways, that is, by not filing tax returns, not reporting the appropriate amount of income, over-claiming of allowable expenses or simply by not paying taxes owed,” explains Axelasia executive director Thang Mee Lee.

While tax avoidance is generally not seen as illegal, she says there are provisions within the Malaysian tax code which allow the Inland Revenue Board (IRB) to rein in overzealous tax avoidance activities.

“In the context of Malaysian taxation, there are anti-avoidance provisions in the Income Tax Act 1967 to prevent the avoidance of tax or to counter schemes which are regarded as ‘unacceptable’ to the IRB,” she adds.

This allows the Director-General of Income Tax to disregard certain transactions which he believes have the direct or indirect effect of altering the incidence of tax or avoiding it.

“In viewing whether a scheme or transaction falls within the anti-avoidance provision, the courts would look at ‘substance over form’ and whether the transaction or scheme is driven by economic or commercial consideration [or merely to avoid taxes],” Thang explains.

IRB clampdown

KPMG executive director (tax risk management) Soh Lian Seng acknowledges there has been a significant level of non-compliance among corporates in the past, although it is unclear how that compared with other jurisdictions.

‘Recently the IRB has increased its efforts in conducting more tax audits and tax investigations on corporates,’ says Soh

He, however, notes the IRB has been steadily increasing its monitoring and curbing efforts on errant corporates.

“Recently the IRB has increased its effort in conducting more tax audits and tax investigations on corporates to monitor higher compliance while trying to clamp down errant corporates. The IRB has been targeting different industry corporate players,” he says.

This is in line with the IRB’s announcement early this year that it is seeking tax evaders as a top priority. Its deputy chief executive Datuk Mohd Nizom Sairi said the board would closely monitor “aggressive tax planning” by companies. “Aggressive tax planning” refers to the practice of exploiting legal loopholes or disguising business transactions to reduce taxes.

The IRB’s increased vigilance was evident when it slapped several listed companies with additional assessments and penalties. The latest was SP Setia Bhd which was told recently to pay additional income tax and a penalty totalling RM75.4 mil for assessment years 2008-2011 and 2013.

In May, the IRB also issued notices of assessments and penalties totalling RM476.5 mil to a subsidiary of Magnum Bhd. In August, a subsidiary of MK Land Holdings Bhd was slapped with assessments and penalties totalling RM80.7 mil, followed by a Cocoaland Holdings Bhd subsidiary with a RM5.89 mil tax bill in October.

Some of the companies believe they have grounds for appeal and are in the process of challenging the notices.

The IRB’s efforts to claw back taxes from errant companies are generally paying dividends, with Axelasia’s Thang noting that “the amount of additional taxes and penalties collected in 2017 to-date is higher than in 2016.”

The IRB does not appear to be slowing down and has announced it will look to impose a penalty rate of 100% on errant taxpayers, particularly in cases of repeat defaulters, aggressive tax planning schemes and refusal to cooperate with the board during audit or investigation processes, among others.

How we ranked the companies

• To rank the Bursa Malaysia-listed companies according to total taxes paid in their latest financial years, we used the income tax expense item stated in their income statements. We did not deduct deferred taxes from this expense.

•  The income tax expense was used as it refers to the tax liability for the year, adjusted for over/under provision for tax in prior years and deferred tax (relating to temporary differences).

•  We ranked the companies according to income tax levels and picked up the top 50.

•  For ease of comparison, we took the total tax expense of each company regardless of whether it was Malaysian or foreign tax.

• However, most of the companies paid taxes related mainly to their Malaysian operations. Only a few companies paid higher foreign taxes than in Malaysia. 


Malaysia’s corporate tax facts

• All resident corporations are taxed under Malaysia’s tax regime. A corporation is considered a resident if its management and control are exercised in Malaysia.

•  The standard corporate rate is 24%. SMEs (paid-up of RM2.5 mil or less) are taxed 18% on the first RM500, 000 and 24% on the balance.

•  All income derived from Malaysia is taxable, including gains or profits from a trade or business, dividends, interest, rents, royalties, premiums or other earnings.

• Foreign-source income is exempt from Malaysian tax unless the corporation is in the banking, insurance, air transport or shipping sectors.

• Dividends under the single-tier system (which corporations are required to adopt) are not taxable.

• Capital gains are exempt, except for gains from disposal of real property or sale of real property company shares.

• The tax rate on real property disposals are 30% (first three years), 20% (fourth year), 15% (fifth year) and 5% (sixth year onwards).

• Losses may be carried forward indefinitely unless there is a substantial change in ownership of a dormant company. The carry-back of losses is not permitted.

• Various incentives and other taxes are also part of the tax regime and their application will differ from one corporate to another.

• Malaysia has a general anti-avoidance rule that allows tax schemes entered with a primary or dominant purpose of obtaining a tax benefit to be disregarded by the IRB.

Source: Deloitte Malaysia 


Finance sector paid the most

Of the nine sectors in the Top 50 tax payers, the finance sector paid the highest at RM7.58 bil. It was largely contributed by Malayan Banking Bhd (Maybank), Public Bank Bhd and CIMB Group Holdings Bhd (CIMB).

Corporate taxes paid by sectors

Top-ranked Maybank paid RM1.88 bil on a pre-tax profit of RM8.84 bil in FY16. However, its effective tax rate was 21.26%, lower than the statutory 24% due to some tax breaks.

In third spot was Public Bank which paid RM1.29 bil on a pre-tax profit of RM6.55 bil, while fourth-place CIMB contributed RM1.25 bil on RM4.88 bil earnings.

The trading/services sector paid the second highest taxes with a combined RM5.89 bil. The top three payers were Tenaga Nasional Bhd, Genting Bhd and Berjaya Corp Bhd.

In FY17, Tenaga Nasional, which ranked second in our overall list, posted a pre-tax profit of RM8.28 bil but paid RM1.37 bil tax. Its effective tax rate of 16.5% was lower than the statutory 24% largely due to the utilisation of reinvestment allowance incentive. In 2015, the Inland Revenue Board (IRB) slapped Tenaga Nasional with an additional tax bill of RM2.07 bil for the years of assessment 2013 and 2014, which the utility giant is still disputing.

Genting posted RM5.52 bil pre-tax profit and paid RM991.4 mil tax in FY16, while Berjaya Corp made RM662.63 mil and contributed RM345.21 mil in FY17.

Telecommunications was the third-largest tax-paying sector contributing RM2.12 bil, led by Maxis Bhd, DiGi.Com Bhd, Axiata Group Bhd and Telekom Malaysia Bhd. Maxis paid RM724.21 mil, representing an effective tax rate of 27%, largely due to non-tax deductible expenses.

In fourth place was the industrial products sector which paid RM1.26 bil. Petronas Chemicals Group Bhd contributed RM888 mil and Petronas Gas Bhd RM370.47 mil.

The properties sector was the fifth-largest contributor with RM1.24 bil, led by IOI Properties Group Bhd which paid RM468.8 mil on a pre-tax profit of RM1.44 bil.

The plantations sector paid RM656.36 mil, consumer products RM447.53 mil, construction sector RM412.98 mil and infrastructure project companies RM104.43 mil. – By Johnny Loh 


GLCs contributed 40% or RM7.9 bil

The 18 government-linked companies (GLCs) on our list collectively paid 40% or RM7.9 bil of the RM19.7 bil paid by the top 50 tax payers. This makes them the largest contributing group, even higher than any of the nine Bursa sectors.

In fact, they paid RM1 bil more than the combined RM6.2 bil contributed by the 19 companies in the trading and services sector. 

Corporate taxes contributed by GLCs

The largest GLC contributor was Maybank Bhd which paid RM1.9 bil, or an effective tax rate of 21.3% on earnings of RM8.8 bil. The bank is under the control of Permodalan Nasional Bhd with a 48% stake via Amanah Saham Bumiputra.

Tenaga Nasional Bhd (TNB) was second contributing 16.5% or RM1.4 bil on its pre-tax profit of RM8.3 bil. The group is controlled by Khazanah Nasional Bhd which holds a 28.1% stake.

In late 2015, TNB had a run-in with the taxman with the Inland Revenue Board (IRB)slapping it with an additional RM2 bil tax bill after the latter disallowed its reinvestment allowance claim.

The utility player challenged the additional assessment and penalty imposed by the IRB in court. It said it had made the reinvestment allowance claim due to the heavy investment in annual capital expenditure incurred for the purposes of expansion, modernisation and upgrading of its electricity infrastructure.

As a power producer and distributor, TNB traditionally has access to significant tax incentives in relation to its capital expenditure.

In December last year, it was announced that both parties would enter into a consent judgement. “The consent judgment also provides that the IRB will not commence any proceedings against the notices until this matter is determined by the Special Commissioners of Income Tax (SCIT) and by the High Court on a subsequent appeal,” TNB said in a Bursa Malaysia filing. The matter is still pending.

Rounding up the top three largest GLC taxpayers is Petronas Chemicals Group which paid RM888 mil or 21.6% of its pretax profit of RM4.1 bil. The group is majority owned by Petroliam Nasional Bhd (Petronas) with a 64.3% stake.

Other listed Petronas entities were also significant contributors. Petronas Gas Bhd and Petronas Dagangan Bhd paid 17.5% and 24.5% taxes on their earnings, respectively. This ranked them 6th and 8th among their GLC peers.

The national oil company owns 60.6% of Petronas Gas and 69.8% of Petronas Dagangan.

This article first appeared in Focus Malaysia Issue 260.