Wednesday, January 20, 2010


So I was chatting with a friend about the current banking industry recently. We got to talk about a type of account where a mortgage account is linked to a current account. In a way, it is something like a combined account. In fact, it's a very flexible system known as a "Save Link" account I have in Alliance Bank.

I was saying that if, for example, I have an existing loan of say RM100,000, and a monthly installment of say RM1,000, a portion of that monthly installment is meant for paying the interest element of the loan; and the remaining portion is meant for paying the amount owed. However, if I have in excess of RM100,000 in my current account, i.e. more than the amount owed to the bank, then the entire monthly installment will be utilised to pay for the loan, and nothing for the interest element. In such a way, the loan can be settled in a shorter period. I said I liked such an account because if I have excess money, I can simply park it in my current account and leave it there until I actually need to spend it. But for as long as my money is there, it can offset the interest element for the amount owed to the bank.

However, my friend was saying that that is not such a good idea. According to him, the Inland Revenue can trace all accounts in the banks, and it can then find that although I have a loan from the bank, I'm not paying any interest; meaning that I'm not actually owing the bank anything, i.e. I have excess cash! Because of that, the Inland Revenue can pursue the matter; it can dig deeper to investigate into my earning capacity and will soon be able to find the incomes which I did not declare! It can then tax me some more!

I have been in the property profession for a good 20 years now. Throughout those years, I have come across so many people in the property market—from the fixed-income house buyers to the big time developers. I can safely say that most of them, in one way or another, would try to escape from paying tax. Whether it's income-tax, or property gains tax, you name it, if they can, they don't want to pay a single sen of tax!

Because most people are like that, it is presumed that all people are like that. But I resent the fact that I am presumed to under-declare my incomes. Yes, I will try to pay as little income-tax as I can by claiming whatever reliefs allowable legally, but I shall not under-declare my incomes for the sake of escaping from paying income-taxes! I am not afraid that my bank accounts will show that I am not paying interests to the bank. IF I have excess cash at all, it is net of tax, and I can spend it as I like. There is no need for me to be scared of the Inland Revenue's investigators. So I say again, the "Save Link" account is good for me.

Many people don't really understand about income-tax. I've met people who I knew could afford to buy their new cars on cash terms. Yet they took up loans to pay for them. When I asked them why, they said so that the Inland Revenue will not come chasing them for taxes. Then I asked them if they had evaded taxes. And they said they had declared their incomes truthfully and paid all their taxes. If they had declared their incomes truthfully and paid the relevant taxes, then what's left is theirs; they can spend the money as they like. There is absolutely no reason to feed the finance companies.

So there you go, some of us duly pay our income-taxes in full. Of course if we can find legal loopholes to pay lesser taxes—although sadly there are not many—then, yes, we will want to take advantage of those. I supposed you could say that we are fools, especially since the Government is not exactly very prudent in spending our money. On the contrary, quite frequently there is a lot of wastage—by the millions; by the billions. But well, that's a different story, I guess.


Anonymous said...

This is the same kind of choice I was given for my student loans. I like having that choice, I think it is smart. As long as those people are not doing anything fraudulent, I don't see why they should be fearful..

maybe the loan industry gives incorrect information so people will take loans even when they don't have to :)

Cornelius said...

Yes, I suspect that is the case, Sarah. Agents from the finance companies give incorrect information so that people will borrow money from them.

However, I also believe that some of those agents do not do it intentionally. It is possible that they themselves are not very well-versed with taxation law, so much so that they truly believe that they're imparting correct information to their would-be clients.