UNTIL 1996, about half of the countries in the Organisation for Economic Cooperation and Development (OECD) allowed tax deductibility when companies paid bribes to foreign public officials."
Article 12(4) of the United Nations Convention Against Corruption (UNCAC) mandates that "each state party shall disallow the tax deductibility of expenses that constitute bribes".
This article underscores the global commitment to combating corruption, emphasising that bribery cannot be treated as a legitimate business expense.
UNCAC is an international convention under the United Nations Office on Drugs and Crime, aimed at implementing anti-corruption measures in its member states. Malaysia, a signatory of UNCAC since 2003, ratified it in 2008.
In the context of business, tax deductions refer to expenses that can be subtracted from a company's gross income before calculating its taxable income.
When an expense qualifies for a deduction, it reduces the company's tax liability.
This framework raises an interesting question: are there countries that ever allowed bribes as tax-deductible expenses?
Until relatively recently, some countries did allow the deduction of bribe payments to foreign officials as legitimate business expenses.
A 2020 BBC article, "Switzerland moves to close bribery loophole," revealed that until 1996, around half of the countries in OECD permitted companies to deduct bribes paid to foreign public officials from their taxable income.
Germany, France, Australia, New Zealand, and Switzerland initially held the view that corruption was an inevitable part of doing business in some regions. It was seen as an unavoidable cost.
However, that view changed significantly with OECD's adoption of new resolutions requiring member states to outlaw tax deductions for bribes.
Today, nearly all countries, including Malaysia, prohibit tax deductions for bribery.
Corruption is classified as a criminal act rather than a business expense, a principle that has gained wide acceptance globally.
In Malaysia, there is no specific legal provision in the Income Tax Act 1967 that explicitly states bribes cannot be deducted for tax purposes.
However, this is because bribe payments are never considered legitimate business expenses.
Corruption is a crime, not a taxable business cost, and transactions related to bribery can be prosecuted under the country's anti-money laundering laws.
Under Section 4(1) of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA 2001), any financial transactions linked to the proceeds of corruption are considered money laundering offences.
Furthermore, Sections 40 and 41 of the Malaysian Anti-Corruption Commission Act 2009 (MACC Act 2009), along with Sections 55 and 56 of AMLA 2001, allow for the seizure and forfeiture of assets gained through corrupt activities, with or without prosecution.
Many are unaware that Malaysia adopts a progressive policy in anti-corruption measures through the taxation system.
Malaysia's government has gone a step further by offering tax incentives to encourage businesses to adopt and promote anti-corruption measures whereby these tax deductions aim to foster a corporate culture rooted in integrity, good governance and transparency.
Here are three tax incentives that companies can take advantage of:
TAX Deduction for Anti-Corruption Education Programmes
Under Section 34(6)(h) of the Income Tax Act 1967, companies that invest in integrity and anti-corruption education programmes are eligible for tax deductions.
This incentive, approved by the Finance Ministry in 2021, allows businesses to deduct the full amount spent on these educational initiatives from their taxable income.
To qualify, the educational programme must be conducted in collaboration with MACC and must serve the public interest.
The programmes can take various forms, such as seminars, forums, or awareness campaigns, and must not be profit-driven.
TAX Deduction for Developing Anti-Corruption Plans
The government also offers tax deductions for companies that develop and implement comprehensive anti-corruption plans.
Approved on May 31, last year, this incentive allows businesses to deduct expenses incurred in creating internal anti-corruption policies from their gross income.
These plans, which must be developed in collaboration with MACC, the Malaysian Institute of Integrity or other qualified organisations, should address corruption risks in all areas of a company's operations.
Eligible expenses include fees for corruption risk management workshops, consultancy services and even the cost of printing the plan. Companies can claim up to RM100,000 in tax deductions for these activities.
DOUBLE Tax Deduction for Anti-Bribery Management System (ABMS) Certification
To encourage businesses to adopt international standards for anti-corruption, the government offers double tax deductions for obtaining certification under the MS ISO 37001: ABMS.
This certification, aligned with Malaysia's National Anti-Corruption Strategy 2024-2029, is becoming important for companies bidding on government contracts worth RM10 million or more.
Expenses eligible for double tax deductions include application, assessment, and certification fees charged by the Department of Standards Malaysia or other recognised certification bodies.
After the first year of certification, companies can continue to claim deductions for annual surveillance and renewal fees.
The government's commitment to combating corruption and promoting good governance is evident in its tax policies.
These incentives encourage companies to invest in anti-corruption measures, creating a more transparent business environment.
By participating in these initiatives, companies not only contribute to the nation's anti-corruption efforts but also attract greater foreign investment, as a business landscape marked by integrity is more appealing to international stakeholders.
Far from being burdensome, implementing anti-corruption measures can have long-term benefits for businesses.
Strengthening governance, integrity and ethical practices not only safeguards companies from legal risks but also boost their reputation and competitiveness.
As Malaysia continues its fight against corruption, the corporate sector has a crucial role to play in driving positive change.
In conclusion, the government's tax incentives are a powerful tool to support businesses in building a culture of integrity.
These incentives serve as a win-win solution, promoting transparency and accountability while offering financial benefits to companies that embrace ethical practices.
The writer is director, Monitoring and Coordination Division, Malaysian Anti-Corruption Commission (MACC)
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times