Interview: Wong Chen on a controversial tax bill, how Parlimen Malaysia works, baiting and walk-outs (update 1)

June 29, 2014 yuleng

25 June 2014: Interesting developments in the Malaysia fiscal scene bring us to interview again (in an unexpectedly short space of time) Wong Chen, MP for Kelana Jaya. He broke the story on the IRB Act proposed amendment. Over the years I've been loosely following Malaysia fiscal and state-controlled pension investment programs.

29 June 2014: Update 1 comprises inclusion of link and summary of Prof Mukul Asher's analysis.

Picture of The Edge Malaysia business weekly which features the IRB amendment story as follows “Oh no, not the taxman too? Everyone fears the taxman coming after their money. Now the taxman has to worry about people coming after his money. Read our Cover Story on the controversial proposal for the Inland Revenue Board to invest part of its money in stocks and bonds….”

Related posting: ISEAS Perspectives - The Tough Task of Narrowing Malaysia’s Fiscal Deficit by Khor Yu Leng Here's is my review of key risks in Malaysia's fiscal situation and the likely problems in addressing them. These include concerns about patronage affecting the bond market. http://khoryuleng.blogspot.sg/2013/10/iseas-perspective-tough-task-of.html

Other analysis: Professor Mukul Asher's view here, http://asiancenturyinstitute.com/economy/673-malaysia-should-not-mix-tax-collection-with-wealth-generation; concluding that "The 2014 Bill could hamper the task of Malaysia’s Fiscal Policy Committee (FPC), setup in June, 2013 to manage or to help ensure fiscal sustainability and long term macroeconomic stability. In its 2013 Article IV consultation report, the IMF had suggested that the FPC should progress towards greater operational independence, improve professionalism, enhance transparency of fiscal operations, and contribute to better quality public policy debates on Malaysia’s public financial management.... The 2014 Bill however is likely to lead to heightened perceptions of Malaysia’s fiscal risk, and to concerns about Malaysia’s international competitiveness. In the current uncertain and gloomy global macroeconomic prospects and heightened financial and capital market risks, the timing of the 2014 Bill is therefore also wrong...."

An exclusive interview with Wong Chen, Parti Keadilan Rakyat*, Member of Parliament for Kelana Jaya, Selangor, 20 June 2014.

*Parti Keadilan Rakyat is led by Anwar Ibrahim, the de facto leader of Pakatan Rakyat, the opposition coalition that includes the Democratic Action Party (DAP) and Parti Seislam Malaysia (PAS).

Q. On 12 June 2014, you broke the story of a new investment fund proposed via amendments to the Inland Revenue Board (IRB) Act. What was this all about?

The current Inland Revenue Board (IRB) Act allows the IRB to create a fund called the IRB Fund to make investments. The proposed amendments by the Finance Minister sought to create an Investment Panel to replace the IRB’s powers on all investment matters. If the amendments are passed, the IRB will give away its investment duty and powers to this proposed Investment Panel.

In addition, the amendments sought to expand the Investment Panel’s power to invest in any type of investment as long as it is approved the Minister of Finance (currently PM Najib) including IPOs. The amendments are peculiar because the IRB is a tax collection agency and not a sovereign wealth fund. What was even fishier: the amendments propose that the Minister of Finance be given direct and indirect powers to appoint 6 out of 7 members of the Investment Panel. The inclusion of the Governor of Bank Negara Malaysia (the central bank) as the 7th member, was a dead give-away that this fund would not be a small thing but likely to be a multi-billion Ringgit fund. Why else would the Governor be called to such duty?

In business circles, when we talk about creating an “Investment Panel”, it is understood that billions would be involved. I immediately had a bad feeling about this and decided to hold a press briefing.

Q. Who did you discuss your concerns about the amendments to the IRB Act? Who was most interested?

I spoke to a professor of public policy, who is a world renowned expert in fiscal matters. He was very surprised to hear about this approach. Within the party, I consulted with Rafizi Ramli (MP for Pandan) as this was a matter of national importance and he has a strong corporate and management accounting background. I alerted several Malaysia financial news editors and international ones including the Financial Times, Asian Wall Street Journal and Bloomberg. Most importantly, I contacted the international rating agencies. I thought they would be interested as it is a national fiscal issue, where tax revenues could be tapped at source and the Finance Minister could pursue more off budget projects. My immediate suspicion was that this looked like the proposed formation of the next 1MDB. In fact, the IPO clause might have seen the IRB Fund also being used to invest in the soon to be listed 1MDB.

Q. What was Barisan Nasional’s rebuttal or clarification? Do you accept what they say?

Three days after my press conference, the 2nd Minister of Finance made a statement, which was reported in Sin Chew that that no tax revenue would be used by the Investment Panel. He said that the IRB Fund would only comprise of moneys from 1.5% on tax revenues after deducting salaries, bonuses and operating costs of the IRB.

First, an important digression. This is the first time the BN government has confirmed what everyone has been suspicious about, that the IRB is being incentivized by a commission rate to collect more tax. According to the Minister, the current commission rate is 1.5% of total tax collected. We must remember that 1.5% rate is not law and it is not fixed by legislation. This rate could vary on executive orders, up or down.

Let me illustrate the point. This year the IRB targets to collect RM140 billion in tax. IRB will be paid a 1.5% commission rate on the collection; i.e. thus for 2014, the IRB will get RM2.1 billion for its operations and investments. There are 11,000 IRB staff. Do the math and you will see that for each officer, RM190,000 is spent on them for operational costs, salaries, bonus and investments. That’s why the IRB officers have been working extra hard.

Now back to the Minister’s point on the IRB Fund. The Minister is saying that the IRB Fund will come purely from the 1.5%. So after deducting salaries and bonuses and operating costs, the leftover is to be used for investment. So how big is this leftover? In 2011, (this is the latest figures publicly available) the IRB Fund for investments stood at RM255 million, all in fixed deposits with licensed banks.

So what the Minister basically said is that I was wrong in my allegations and that the Fund will continue to be relatively small at around RM255 million and that this is not a 1MDB sized type of fund. That this IRB Fund is merely a small fund for officers of IRB and thus not a big deal.

What the Minister said is not the full story. When I first read the bill, I saw the genius of the drafting for these amendments. Whoever drafted this is one smart fellow. The current section 23 of the Act, allows the IRB Fund to increase in size not only from internally generated commissions alone. So the IRB Fund is not just about the 1.5% commission.

Furthermore, it states that the IRB Fund could increase by way of receiving grants from the Finance Minister. The IRB Fund could also load up on debt. This really raised the eyebrows of senior KL bankers that I spoke to. The IRB Fund could also increase in size by virtue of a catch all phrase of “all other moneys lawfully received”. In other words, legally the Minister of Finance can increase the IRB Fund into the multi-billions.

That is the genius of the amendments, if you slack off as a lawmaker and just read the actual amendments, you will miss out the full picture. The key is to read the whole Act and put in context these amendments to the current sections. I read with great alarm that the IRB Fund could be the next 1MDB by using the existing section 23 combined with the formation of the Investment Panel and the powers to invest in anything under the sun.

Look, if the fund is really so small as stated by the 2nd Finance Minister, the Bank Governor will not get out of bed to attend an Investment Panel meeting. If the IRB Fund is so small, why go through the trouble of legislating to create an Investment Panel, why not just appoint a Chief Investment Officer in the IRB. Why must the Finance Minister take the trouble of making sure he has powers to appointing 6 out of the 7 Investment Panel members? Lastly, if the amendments are harmless, why did BN withdraw the bill?

Q. Barisan Nasional has the numbers in Parlimen Malaysia to vote en bloc to approve any bill or amendment. Why do you think they held back from pushing through the amendments to the IRB Act?

Good question. Yes, BN has more than 51% majority (they have 60%) and could have easily pushed it through. What stopped the Finance Minister? Well I spoke to several BN backbenchers and urged them to be ready to do the right thing if push comes to shove. I also spoke to the Public Accounts Committee members and they were very concerned.

However Malaysian politics is extremely partisan. When push comes to shove, even the most “concerned” backbenchers will vote for the government. Since I started my term last year, I have not seen any BN backbenchers ever vote against the government. No abstention even. Not even during the vote on the new ISA provisions in the Prevention of Crime Act (PCA). I remember vividly how MCA had publicly said that they will vote against the PCA bill and a few days later, I saw all of the MCA MPs sheepishly stand to support the PCA bill. In other words, I don’t think Najib will give two hoots to what MPs like me think about his IRB amendments. I also don’t think he cares much for the views and opinions of his own Backbenchers.

So, I suspect the real reason why Najib withdrew this controversial bill must have something to do with questions raised by international financiers and rating agencies. PM Najib has proven to react and retract positions if it has international repercussions. This matter was picked up by Malaysian financial papers as well as international newswires. So when it comes to the international finance types, he sits up and listens.

Q. Since you’ve been in Parlimen Malaysia, how many times do you think Barisan Nasional has pulled back in this way?

I can remember only once. The Prevention of Crime Act (PCA) was withdrawn when the heat was on. It was then reintroduced with superficial amendments in the following Parliamentary session and was just steamrolled through. So it is very important that we remain vigilant on this IRB bill when Parliament sits again in October. We need to start a solid campaign in September.

Q. Many people seem to think that your party, Parti Keadilan Rakyat (PKR) is the least organized among the Pakatan Rakyat opposition coalition. How did you come to identify this major issue ahead of the others?

Haha, are we the least organized? Well at the grassroots level, yes we have room for improvement. We are a truly multi-racial party so we find it more difficult to attract support. This country is very polarized, racially and older folks (with money) are more willing to support single race parties. Thank God the trend is changing slowly and as such PKR has seen steady growth in grassroots support in the last few years.

Let’s be blunt about this. Good organisation requires money and we don’t have any. So, to be fair, I think we are doing the best we can with limited funds. Most of our staff are severely underpaid and most are doing partial voluntary service. You can’t sack a volunteer for under performance.

As for the PKR MPs in Parliament, we are well organized. We have a pre-counsel every Monday lunch to discuss and portion out the bills to be debated. For the last session, I was assigned three bills, the Supplementary Budget bill, the IRB bill and the Anti Money Laundering and Anti Terrorism bill.

Anwar Ibrahim chairs our meetings and provides guidance and leadership. The Chief Whip, Azmin Ali (Gombak) is a capable organizer and is tasked to communicate to the Speaker and BN MPs. These behind the scene talks are crucial to ensure that Parliament functions properly. He is supported by his deputies, Sim (Bayan Baru) and Darrell (Penampang). Rafizi, Gooi, Laksmana Imran, Abdullah Sani, Dato Johari, Zuraida, Dato Idris, Hee, Jayakumar, Nurul Izzah, Dr. Azman, Dr. Tan, Manivanan and others are regulars at such meetings. Our think tank, headed by Ooi Heng prepares our talking points. My own office also has a dedicated researcher. Everyone gets a chance to speak and argue out points. It’s a little bit like being knights of the roundtable. It is a privilege. Meetings are filled with humour as MPs try to be witty. But, we do take the work seriously.

How did I get to break the IRB story? Well pure chance, I volunteered to do it. Nobody had a chance to read it prior to the meeting since it was presented to us that very morning. So when the Whip asked who wanted to do this bill, there were no other takers. I volunteered since I worked on tax issues at the last Budget. I guess I lucked out.

Q. How does the opposition coalition coordinate their strategy and tactics in Parlimen Malaysia?

There is no formal arrangement, except when something big happens. The chief whips of each party work together and coordinate on important matters. The whips also sort out the order of debate for Pakatan Rakyat. The only time the MPs from all sides get together are for events and presentations. We also work closely in crafting the Alternative Budget via the Pakatan Rakyat Secretariat, which is chaired by PKR. However, most strategy and cooperative planning are done on personal initiatives.

Personally, I take the initiative to talk to my counterparts from Pakatan Rakyat. In the last session, my researcher and intern presented our findings on the Anti Money Laundering bill to 3 PAS MPs, 2 PKR and 1 DAP. I issued an open invitation and the 6 MPs responded.

The PKR office is on the 14th floor of the Parliament building and PAS’s office is also on the same floor. I would meet PAS lawmakers while waiting for the lift, which is notoriously slow. So in the 3 to 5 minutes waiting and being in the lift, we would discuss issues coming up for debate. It helps a lot that I grew up in Kelantan!

I also go to Parliament at 9 am. I usually have long breakfast meetings with another early bird, Raja Bahrin from PAS. Occasionally, I will also drop by the PAS Parliament office to catch up with Dr. Hatta, Khalid Samad and Mahfuz. I get on well with Dr. Hatta, he has a dry witty sense of humour, and he’s very smart. With DAP, I work closely with Charles Santiago on the TPPA and I am friends with Dr. Ko and Julian Tan (we are at the junior seating positions, at the farthest back corner away from the Speaker).

Q. What is the quality of debating in Parlimen Malaysia? I hear that some of the new MPs are bringing a new approach?

Old school and new school debate differently. The old school guys can latch on a single point, most likely a controversial news item and milk it for 10 minutes. They have the gift of the gab. These are confident and gifted orators. Most speeches in Parliament last between 10 to 20 minutes. Occasionally, the Speaker will allow you to talk for 30 minutes.

I have also seen some MPs digress on policy debates. Last year, there was a bill to increase the fees and finance of Muzium Negara. It is a very simple, insignificant and non contentious bill. But to my surprise a lot of MPs stood to debate the matter. Back then there was a breaking news story about a contractor who destroyed a historical site in Kedah. I saw several MPs make a link of this hot news item to the fact that Muzium Negara had antiquities, so that “allowed” them a link to debate at length about the contractor’s desecration. No one talked about the actual amendments to the fee structure of Muzium Negara.

Rafizi is pioneering a group of younger PKR MPs to actually stick to the point when debating. He was a debating champion in MCKK. I can’t speak for my fellow MPs, but I try to do thorough research before speaking. I will basically keep to the actual amendments and not digress too far. I use a simple speech structure: 1/3 focus on the history and social context of the bill, 1/3 on the actual amendments and their direct impacts and the last 1/3 on my critique of the bill and if any, suggestions for improvements.

Q. There was a recent walk-out of opposition MPs. There are also a couple of MPs who seem to enjoy being barred from Parlimen. Some say it’s childish to shirk your duties in this way. Isn’t there a better alternative to such walk-outs and baiting?

The issue of Surendran and the Speaker seems to be something beyond a question of standards or professionalism. Many of us are beginning to feel that the animosity might now be personal in nature. I don’t think Surendran enjoys being suspended but he has strong views on how Parliament should be. A lot of us respect that, but it is not a very practical approach.

Most of us will work within the confines and challenges of the system. We have to be smarter and work harder to catch out the Ministers. Occasionally, like the IRB matter, we can actually swing views and win small victories. Ultimately, you are elected to serve your constituents. You have to choose your own path on how best to serve your community.

Walk-outs happen. When you are in Parliament, and you see grave injustice and one of your own brother MP is being persecuted, you don’t really think - you just react. There is no room for restraint or gentlemanly behavior in such instances. You are not at a society ball sipping tea, this is political warfare with the full might of the government bearing down on you.

The stress that Pakatan Rakyat MPs put up with, having our Parliamentary questions rejected, having to receive inane and deceptive answers from Ministers, having to put up with heckling without protection from the Speaker. All these builds up inside you. It builds up during the Parliamentary session, so by the time we reach the last day of the session, when suspensions are handed out, we are all in a foul and combative mood. So when an external event, such as the recent suspension of Surendran happens, and you are seeing all these injustices unfold, you react. There is a cathartic release of sorts in a walk out. It is a show of solidarity and a moment that binds all Pakatan MPs together, to remind us that we fight for fairness and justice. A walk out is probably the most civil action we can take. I think we are still very far from Taiwanese punch ups.

Other interview: Thursday, June 5, 2014 - Interview: Wong Chen on electoral politics in rural Malaysia and Teluk Intan; http://khoryuleng.blogspot.sg/2014/06/interview-wong-chen-on-electoral.html