The Pandora Papers: The Lesson from America

 The Pandora Papers:  The Lesson From America

M. Bakri Musa

 

[Excerpt of my memoir Cast from the Herd will resume next week]

 

The Pandora Papers reveal a long list of the rich and powerful having substantial assets held in secret offshore accounts. Remarkable for their absence is that there are no American billionaires on the list. Also significant is that while Jordan’s King Abdullah is on it, no Malay sultans are. Before cheering, please read on.

 

Both current Finance Minister Tengku Zafrul Aziz and his predecessor Daim Zainuddin are on it. That speaks volumes of their faith in the local system that they have to invest abroad, and in secrecy. Their job should have been to make Malaysia the choice destination for all investors, foreign and domestic; not fleeing from it.

 

Americans are not on that infamous list because they pay taxes on their global incomes, regardless whether domestic or foreign. Having an account in tax-haven Panama would not affect your taxes. If you were to hide your income, then that would be a crime. For lawyers, they could be disbarred while doctors could lose their license.

 

Americans with assets or financial accounts abroad above a certain threshold must file annual reports to the Internal Revenue Service regardless whether those assets earn any income. The report must include year-end value as well as the highest and lowest figures for the year, reflecting the associated transactions.

 

Malaysians are not taxed on their foreign incomes; likewise, income from certain entities owned by locals but incorporated or registered abroad. No surprise then that Malaysians have foreign accounts, quite apart from the secrecy. Americans have little need for either as some states offer even more generous tax advantages, and one’s financial and other data are private. Divulging or misusing those information could lead to prosecution or civil suits.

 

That also explains why Malay sultans are not on that Pandora list. They have little need for the Virgin Islands (unless they think those islands are full of virgins) as their assets are already secret in Malaysia, and nobody dare ask them to pay their taxes. A few years ago the Sultan of Kelantan drove off with his imported luxury car from the port lot, skipping the import and other taxes. The personnel did not dare stop him.

 

President Reagan was notorious for his hostility towards taxes, yet he introduced the “alternative minimum tax” and other provisions that affected only rich Americans like him.

 

Contrast Reagan to the local Daims and Zafruls. Instead of closing those tax loopholes, they took advantage of them. That is a tragic commentary not only on the pair but also on contemporary Malay norms, culture, and values. It also explains why Malaysia, led by the likes of them, remain Third World in status and mentality.

 

I do not know and could not care less how the Daims and Zafruls acquired their wealth. This much I am certain – theirs, like the overwhelming number for Malays, were not inherited. Until they hit the bonanza of the New Economic Policy (NEP), Malays including the sultans did not have much. NEP through its corruption, nepotism, and rent-seeking activities changed all that. The assets of these nouveau riche Malays, despite their gaudy displays, are but pocket change to the Bezos, Gates, and Musks. The near banana-note value of the ringgit does not help.

 

With those super-wealthy Americans, unlike their NEP-bred Malay counterparts, one has minimal difficulty ascertaining where they get their fortunes. With Bezos, Amazon.com; the behemoth that simplifies my shopping as well as my viewing the latest movies, not to mention the cheap “cloud storage” for my books and precious family albums. Gates’ software helps with my writing and publishing. Musks’ electric cars and solar generators reduce global warming.

 

Name a product or service associated with these mega-rich Malays. Daim was once given (yes, given) state land for salt mining. Alas he is no salt mogul today. Zafrul’s family could not have been wealthy as he attended Malay College where, like the other students there, he was but a ward of the state. Even his meals there were paid for by taxpayers. Really rich Malaysians send their children to Alice Smith School, not Malay College. I do not know whether Zafrul’s overseas university education was also publicly funded. There are many Malays on that list whose education, from their local high school through graduate studies abroad, was government-paid.

 

            Malaysia should emulate America and tax Malaysians on all their income, local and foreign. Then have them, including and especially sultans, file annual reports if their foreign assets or accounts exceed a certain threshold.

 

            Those secret foreign accounts are only part of the problem. Malaysia does not have wealth, gift, or inheritance taxes and there is no chorus to alter that. Then there is the diversion of political donations, another conduit for corruption. Najib claimed that the Euros, dollars and pound sterling hauled from his residence were gifts or for political campaigns.

 

Piketty in his Capital and Ideology (2019) suggests global wealth and inheritance taxes to reduce inequality as well as fund such cross-border challenges as global warming. Note, both are taxes on assets, not income, a concept that should be familiar to Muslims as that is also the basis for zakat.

 

Income tax discriminates against workers; asset tax, the wealthy. Asset tax would also bring Malaysia closer to an Islamic state, more so than introducing hudud. Make the rates the low Qur’anic 2.5 percent and you would also discourage cheating.

 

Zafrul threatens to sue local journalists for exposing the Pandora Papers. I suggest that he focuses instead on amending current laws to discourage Malaysians from investing abroad. Then make Malaysia the haven for all investors, foreign and local. That would endear him to citizens and investors, quite apart from his saving hefty legal fees and wasting precious court times now overburdened with prosecuting the Najibs, Zahids, and other filthy, pretentious NEP-bred nouveau riche Malays.