Saturday, November 29, 2008

The technical brain remains technical

The brain functions in a strange manner. I am one that believes in being in one place at a time and soaking in the atmosphere and all that one can experience. i guess it stems from the fact that I can't multi-task well. I am not the type that wakes up at 5am to cook a meal, prepare the kids for school, gets cleaned up and looks immaculate at work, then reaches home with everything prepared overnight and well chopped vegetables and meat ready to be cooked for a meal in the evening. And as soon as supper is done and cleared, i check on the kids homework for the day and sing lullabies for the little ones to go to bed. Nope, I am no superwoman.

Sadly I am the sluggish, distracted, contemplative type. I get flustered if I have to do anything out of my routine and i do keep my routine very simple. For instance, when the kids were young, I can count with one hand the number of times I met up with friends for the first 10 years. Interestingly, when i tried to keep to doing one thing at a time, I discovered how the brain functions.

Typically, when you are working, one part of your brain functions. Let's call it the working brain. If you work intensely, maybe the working brain occupies 80% of your consciousness. In which case only 20% of the consciousness uses the daily brain. What I found over the last 17 years or so, is that for some stretches when I was not working, only the daily brain is functioning, whilst the working brain refuses to engage in daily living. So 80% of the consciousness will continue to focus on work issues eventhough you are not working. The working brain does not immediately engage itself with the daily living. It looks for something which resembles work. It continues to look for something to absorb.

This probably explains why when one retires or decides to stop work, it is very important to continue learning something technical, or doing something related to the old job. Without doing so, the working brain will probably shut down.

So if anyone of you out there doing tax work is planning to retire i am sorry for you cos i can't think what hobby you will need to take up to resemble your work, hmm, take up taxonomy of birds, be a bird watcher; or be a librarian, is this book general fiction or biography?

the price of efficiency

David Attenborough's Private Life of Plants is a most fascinating documentary on plants. Every screenshot is awesome. It makes me wonder how many different types of seeds are out there in the garden that haven't had a chance to grow.

I would love to have a farm though i don't have green fingers. It may not turn out to be a farm. Maybe i am a naturalist farmer. I believe nature should be allowed to flourish naturally. My role as a farmer is to have access to witness nature. To have a chance to be aware of the environment is to feel the abundance of miracles all around.

Each time a flower bud blooms, one wonders how nature is able to create such an amazing colour. Sprinkle a few dried loosened globes of amarynth and watch the beautiful blooms particularly when that first hint of purple appears. You may see lots of amarynths along the roadside but nothing beats having the bloom right where you can take a close up look.

Life as we know it now has suffered so much interference. Our way of life is mostly unnatural. Just as conventional farmers line their farms with rows of cabbage and rows of corn, that kind of planting though efficient for the farmer, strips the ground of its natural nutrients. Similar plants strip the ground of similar nutrients and invariably the ground ends up lacking in some nutrients.

It is unnatural for people to work in a confined environment with a very defined scope for the sake of efficiency. Just as it is unnatural for people to consume a specific type of food no matter how good it is. Invariably, living this kind of life strips lives of certain fulfilments.

Wednesday, November 26, 2008

Life jackets for select few

With all the bailouts taking place, there is excessive over supply of money in those countries. It would mean a dilution in the value of money in those countries. With any bailout taking place, it could only mean that the people outside of the bailout entity gets poorer as the value of the money they hold inevitably becomes of less value. Is that fair to the people?

It is unfair. That is against the rule of free market. It is only appropriate that at a time when the economy is down and if the business is unable to sustain in the economy, that the business is compelled to change stewardship. That would allow the business a chance to de-value and to re-adjust to its new equilibrium. Not to allow the business to adjust freely would be to distort the economy. And this would result in a mis-match in the perception of the people in assessing the economy. The economy then becomes tainted with government intervention distorting the free market theorem thereby causing a buoyancy in the market trends.

Additionally, the general public would invariably be affected and the value of their savings would also be adversely affected. And more so, if the public were to invest in businesses outside the ambit of the bailout.

It would seem that when the market is in turmoil, only life jackets are thrown out to certain people drowning at sea. That would seem unfair.

If bailouts must take place, the selection of the business to bailout must at least be an objective test. There ought to be an assessment of the reach that the business has. In order words, if life jackets are intended for only a select few, it must be those select few that has the most number of survivors / businesses clinging on the business that is selected for bailout. But even with the ability to do that, the distortion would still have been suffered.

Tuesday, November 25, 2008

burden of proof in transfer pricing

It is a common practice that the tax authorities require a transfer pricing study to be conducted where there are inter company related transactions. The transfer pricing study is used to support the profit margin that the company ought to have earned.

Just because there is inter related party transaction does not mean that the profit margin is inaccurate. Attention should focus on whether the profit margin can be justified. And that requires analysing the cost of goods sold. And in analysing the cost of goods sold, the inter company payments could also be analysed to determined if any of the inter company payments ought to be allocated to those goods sold. Those payments can then be added to the cost of goods.

Any remaining inter company payments should then be separately analysed. All expenses paid by the company under the general rules are typically deductible any way. The mere fact that the payments are to a related entity does not make the payments non-deductible. Should it not be the tax authorities that has the onus of challenging the deductibility of the inter company payments and it is then up to the company to justify the functions, assets and risk analysis of why the expense should be deductible.

The difference in this approach is that the expenses out to be prima facie deductible. And it is the tax authorities that has the burden of discharging the onus that it is not deductible and it is the tax authorities that has the burden of producing the local comparables in order to do so.

Although it may seem practical to adopt a simplistic approach in conducting a benchmarking study to justify the profit margins of the company, there should not be an over reliance on empirical data. Entity characterisation ought not to be taken to the extreme such that companies need to fit within each pigeonhole. There is no justification for the tax authorities to require companies to operate in a particular manner. Oftentimes, it is the uniqueness of the business operations that make a company profitable. Furthermore, in carrying out its duties to collect taxes, the tax authorities should not overly burden the taxpayer.

In short, the tax authorities should operate within the audited financial statements of the company. After all, those figures are audited and are relied upon by shareholders and stakeholders using the financial statements. And those financial statements do verify that the gross profit and the operating profit figures are true and fair.

The company should be able to rely on those same financial statements to support that the inter company related payments are also true and fair and fully disclosed. Again from the standpoint of the financial statements, the onus is on the tax authorities to prove that the financial statements are in fact not true and fair.

To shift the onus to the taxpayer would be to require the taxpayer to conduct an exercise principally for tax purposes which does not derive any value to the company. And that would go against the objective of the company to keep its eye on achieving profitability.

working hours

Could the working day be evolved into a 5 hour work day. This means that parents are able to send the kids to school and be able to pick up the kids after school. That means leaving the house at 730 and be out by 1230. This will allow parents to have lunch with the kids and to spend time with the kids. If 5 hours is insufficient to complete the work for the day, the remaining 3 hours can be from 3 to 6. Or from 6pm to 9pm and this would allow dinner at 530pm. And the 3 hours can be done at home. That would allow any meetings to be done in the office during the mornings. The lunch break of 3 1/2 hours would allow time to settle the children and to attend to some quick errands.

I think initially, the idea of working from home creates this sense of excitement making it difficult to settle down at home. But after a few sessions of working from home, one gets used to the arrangement and it becomes easier to focus. It is basically the difference between going back to the office or staying home to continue work. i think it should be workable. It's a matter of keeping track of the number of hours. Saturday or Sunday mornings could also be reserved for work to attend to any urgent work that could not be attended to during the weekday. It's a good model.




Sunday, November 23, 2008

work/life balance

Can work/life balance be achieved? This is a question most mothers, and fathers in the workforce frequently ask.

The employers typically assume that the employees are selling their time, or some say even their soul, when they sign the employment contract. In the old days, that is called establishing a career.

Times have changed since. People are no longer looking for a career path. That search for a career evolved in a search for work experience, and even that has evolved yet again, and the present employees are looking for an experience in relation to work. There seems to be less importance placed in having a career particularly in the younger generation in search of a more meaningful life.

It is to be seen if this change would be affected by the current state of the global economy. Would employees shift to looking for job security?

A different issue rests with mothers and fathers in the workforce, particularly employees assuming this new role of parenthood. As we are get displaced from the traditional extended family support, it is no longer a luxury to seek for work/life balance. But a necessity. Parents now have more concerns - is the hired help reliable? is the home secure enough for the young children?

There's so many things the employers could do to help these employees. As a part of the corporate social responsibility initiative, the employer could review its existing employment terms to consider how the work/life balance can be achieved. Social responsibility can include taking care of the workforce within the organisation, and need not be strained into a search for some endangered species to protect.

Besides young parents with the need to look after the little ones, there are also those employees who need to look after their elderly parents. This is becoming more of an issue as there are progressively fewer siblings within each family to assume this role.

The traditional organisational structure would need to change to achieve these work/life objectives. In the old days where a person is assigned a task, in the world of technology, it may be possible to assign the job to one person with copying a buddy or a team which can then act as a back-up. Employers who are able to evolve would be in the position to provide flexibility to its employees. Most times, it is only a matter of flexi-time that the employee looks for. The flexi-time would allow the employee to run out to pick up the children from school, or to spend some afternoons at home to see that the children are alright at home, or when the children or the parents are not well, the flexibility to attend to medical care. There are workplace that have shown this can be done and such employers are to be commended for their contribution to social responsibility.

Some employees require more than flexi hours. Getting the chores and errands done is one thing. Can employees spend some meaningful time with their children or parents? Not just to attend to the urgent needs but to spend some quality time. In order to spend quality time, the employee would need to be with the family during family time. And that family say for a swimming outing, or a shopping day, may need to be in the afternoon. This could mean re-scheduling some afternoon work to the evening when the children have gone to bed.

What the employer can do is to allow some employees to work from home to accommodate the odd working hours. Working from home has the benefit of securing a safe environment both for the employee and his or her family. The employee can be home to see that everything is safe and proper care is given and at the same time, work either early in the morning or later in the evening without being out on the road in the dark and becoming victims of crime themselves. Homes should be equipped with proper workstations to allow employees to be able to fully concentrate on work while at home.

statutory duty of the tax authorities

It's a fundamental right of the taxpayer to be clear how it is to be taxed. In the case of transfer pricing guidelines, the guidelines are so vague that in practice, no two person applying those rules to any business would arrive at the same price or profit margin. It is therefore a duty owed by the tax authorities to the taxpayers that the tax authorities work to assist the taxpayers in arriving at a negotiated and acceptable mechanism. Only when the mechanism has been agreed upon, can the taxpayer begin to adopt the system of computation and pay tax prospectively on that agreed mechanism. It is the statutory duty of the tax authorities to bring the taxpayer to the level where the taxpayer can easily and clearly comply with the complicated tax rules as applicable to the taxpayer in the evolving business dynamics. And as the businesses evolve yet again, further negotiation would need to take place. In carrying out its statutory duties, the process is just as important and it is the duty of the tax authorities not to disrupt the business operations of the taxpayer. The business operation is after all the engine that pays the tax. And the tax authorities ought to see itself as a facilitator providing a service to the taxpayers to enable the taxpayers to pay tax in the most efficient and satisfactory manner. Pretty much the same shift that we now see in the immigration office, from the perception that the passport holder is at their mercy to the current view that it is in fact a service provider to the passport holder.

We hope that in due course, the tax authorities as a statutory body, could be regularly reviewed on its key performance not just internally, but by the taxpayers. Has the tax authorities fully discharged its statutory duty (and terrorising is not a prescribed duty under the income tax legislation), in assisting taxpayers to pay its taxes without disruption to its business operations and without incurring non-income generating expenses in order to do so.

theoretical pricing

Malaysia adopted the OECD transfer pricing rules in the year 2003 by issuing formal guidelines. For those who are not required to be familiar with the intricacies of tax laws, these guidelines require taxpayers who have inter-company transactions to prepare transfer pricing documentation.

With the insurgence of global trade, a lot of multi-nationals are subjected to these rules. And also local homegrown companies.

The transfer pricing rules require companies to adopt an arms-length price. This is based purely on economic theory that when parties transact, the real price is the market price or the arms-length price. This theory is as difficult to implement as that of the efficient market hypothesis in the securities industry.

As much as it is nice to make assumptions, so that a nice formula can be developed, it is quite a different thing, to subject businesses to spending loads of money to conform to that mathematical formula. The business world is dynamic and moves in real time. It does not always work in a formulaic manner.

Much as the tax authorities globally would like to have a certain and nicely justified arms-length price in order to compute the tax, the tax authorities ought to recognise that ultimately the price is computed based on assumptions. And in many instances, that price eventually arrived at, if at all possible, is not reflective of the company's transacted price nor does it resemble any other price in the real market place. Why expend so much resources to arrive at a fictional figure?

When rules such as this is implemented, the tax authorities ought to invest resources by using the field audits not as audits, but as a field visit to understand how businesses in each of the industries are common in its basic features.

With that understanding, the functions, assets and risks analysis can be better developed. And the tax authorities ought to be sharing its database with the companies to see how best the functions, assets and risk analysis apply to each of these companies. The businesses can explain their best case and what is most workable.

Whilst there is no understanding between the businesses and the tax authorities, it cannot be possible to place an obligation on the taxpayer to comply with an abstract set of rules such as the transfer pricing rules.

Hence it is wrong for the tax authorities to ask taxpayers during its first field audit if they have any transfer pricing documentation and to threaten a big penalty on taxpayers if they do not have the transfer pricing documentation, or to reject such documentation because the comparables are not acceptable by the tax authorities. Such penalties could run as high as 60%.

taxpayer recognition

Paying taxes is about giving up property to provide for the public. It is an ultimate act of kindness. Whilst the laws and the rules surrounding tax obligation are getting more complex, the administration of tax has become more aggressive. How does that leave the taxpayer feeling?

The education system has generally improved. Little kids are taught to learn through play. There is no longer a need to use the cane. Children are learning just as well if not better.

Will payment of tax ever move on to the next level. Will taxpayers be rewarded to filing their tax returns correctly and paying taxes on time? Hey, how about a free umbrella or even a free diary for the small taxpayer. Will the tax authorities consider holding a concert on tax collection day with a free take-away meal? Should not the top 1000 taxpayers be given a recognition for being a top contributor to the social fund, for giving money to the government to run the country.

Sunday, November 2, 2008

drains and ecology

I miss the old fashioned natural drains where you can find fishes in them and plants growing in the drains. I still see some big fishes in the drains in Kuching, along Bampflyde Road. At least 6 inches long, the ones that i saw. i think those are sepats.

I think Sarawak does have nice natural drains. In Sarikei, i saw nice water hyacinths, well, along the roads in Kuching, around the Matang area, there's also lots of water hyacinths in the drains. But in Sarikei, it was the hyacinths coupled with a couple of baby storks flying low that I thought hmm, it would be nice if we could rehab some of the drains in Bangsar for that.

I am in the process of rehabitating our drains in th garden and it would be nice if i do eventually see water hyacinths and maybe some big fishes. Now the dains in Port Klang have some nice yellow water plants too except the drains are polluted so its hard to appreciate the plants. Maybe the Klang council could clean the drains along the main road from Klang to Port Klang and those nice water plants could then thrive in the drains.

The plants could themselves act as a water filter whilst slowing the water flow down the drains.