Lawyers and tax

To show the world how much lawyers are bad at managing their own money, here's a tale for you. It will be a bit embarrasing for lawyers but its a reality which many will deny (we are lawyers after all).

Yesterday, on 10.12.08, there was a briefing by the Bar Council's tax consultant who had been advising us on the predicament which lawyers had to face due to a series of event when it was discovered that lawyers have been paying taxes the wrong way since forever. That series of event were triggered by a lawyer based in Kuala Lumpur when his firm was audit by LHDN or IRB sometimes in 2006.

When it was discovered by the auditor that the legal firm had been paying their tax according to the receipt basis rule, the auditor was ready to penalise the firm as the way all business paid their tax was in the accrual basis. The receipt basis is when you pay according to what was paid to you and accrual basis is when you pay what was billed by you. The former is where you pay where you have the money owed by your client in your hands or accounts but the second, as long as the client owe you a debt, whether its paid or not, you have to pay your tax accordingly.

There's a HUGE difference.

That firm contended that there was an understanding between IRB and the Bar Council that they agreed to let lawyers pay their tax according to the receipt basis. When asked for proof, the legal firm's owner, who was influential in one of the Bar Committee called the Bar Council and asked for the supposed letter which the Bar Council had in their possession.

There was no such letter.

The guy then met IRB and brought a former Bar Councillor who was supposed to know the whole matter front to back but IRB insisted on the letter.

There was know such letter.

In the end, the tax consultant was brought in, negotiate with the IRB and we were given a concession in Year of Assessment 2008 and 2009, in which we would need to pay any amount received by us of bills issued before 2008 and align back all our previous years tax. In 2010, we would be expected to finish our alignment. During the concession, if we were found through audit by the IRB to be paying according to the receipt basis the previous Year of Assessment, we only need to pay the shortage without any penalty.

What I hate about the tax consultant yesterday was the smirk on his face and his colleague faces when we asked him a few questions about the matter. It showed that he thought all lawyers were fools when it came to tax (which I don't deny is the fact) but come on, you are paid by us. Have some decency. Oh, I forgot, we don't deserve it. Too many lawyers wcrewed too many people to deserve it.

We got the circular way back in 2007 of this matter and I have paid my Year of Assessment 2007 tax according to the accrual basis.

The amount nearly caused me a heart attack but being the good citizen of Malaysia, we paid accordingly with the right amount of tax break.

I hope. for the sake of themselves, all my lawyer friends had changed their tax regime as by Year of Assessment 2010, we would be paying the like any other business.

Nowadays, after paying so much, I am more caring what the government do with my taxpayer money.

Its really true when they say that there is nothing certain except for tax and death.