On the ascension as Malaysia's sixth Prime Minister on Friday, Najib Abdul Razak has lots to do in the next few days. The first big news to greet him on his office table is that Malaysia has been blacklisted by a world body, Organisation for Economic Co-operation and Development.
Before reading this piece of news of being blacklisted, I have only knew that banks in Switzerland, Austria, Lichtenstein, Luxembourg, Isle of Man, Gibraltar and those nations located in Carribean Sea are known for their banking secrecy.
I have never ever thought of my nation being one of those nations. Malaysia has been blacklisted together with Costa Rica, Philippines and Uruguay for failure of not having agreed to international tax standards and refused to adopt new rules on financial openness.
This whole issue arose from the on-going G-20 Summit in London. The G-20 has delivered a strong message to tax evaders - we will find you wherever you are but somehow four countries haven't comply. The decision made in G-20 was based on OECD's listing.
Under the OECD definition, countries will be considered non-compliant if they have less than 12 bi-lateral agreements to exchange tax information with foreign governments on request. Authorities should have access to the information to effectively crack down on tax evasion.
The only tax haven location in Malaysia is at Labuan, an island off the state of Sabah. This island is a territory of the federal government where the Labuan Offshore Financial Services Authority ("LOFSA") was incorporated to administer the tax haven island.
Labuan is an integrated International Business & Financial Centre, offering a wide range of offshore financial products and services to customers worldwide, including banking and investment banking, insurance, captives, trust business, fund management, investment holding, company management and Islamic financing ............................. Labuan's legislative framework is not only business-friendly but also prudent to safeguard Labuan's international image as a clean and reputable offshore financial centre (as extracted from LOFSA website).
If Malaysia do not comply with OECD strict requirements, the following sanctions will be imposed on Malaysia:-
• Increased disclosure requirements by companies and individuals using tax havens
• Withholding taxes on transactions with tax havens
• A ban on the use of interest paid in a blacklisted country to offset tax
• Reviewing tax treaty policy
• Putting political pressure on global companies to withhold investment to a haven
• A reduction in aid
• Scrapping of tax treaty arrangements
• Imposing additional taxes on companies that operate in non-compliant countries
• Tougher disclosure requirements for individuals and businesses that use shelters
• Withdrawal of financing by the World Bank or International Monetary Fund
Besides this tax haven matter, OECD is also against the discriminatory policies and new forms of protectionism towards investment. Malaysia still has such policies within the New Economic Policy. Will Malaysia escape the eyes of those OECD policymakers? Will Malaysia amend its policy first or wait for OECD to enforce this ruling to force a change in Malaysia?
Well, I can only assume one answer coming out from the mouth of one of those ministry officials - Malaysia is not a member of OECD. Just wait and see.
Reading: Following G20 OECD delivers on tax pledge
Reading: Resist investment protectionism, countries meeting at OECD agree
Tags: Organisation for Economic Co-operation and Development, OECD, Najib Abdul Razak, Malaysian Prime Minister, Labuan, Labuan Offshore Financial Services Authority, LOFSA, World Bank, International Monetary Fund, G-20 Summit, Tax Treaty Policy, Tax Haven, Tax Evasion