In some typical Malaysian organizations, having an `entertainment expense account’ is an indispensable tool especially when business relationships are to be formed or maintained.
Entertainment expenses in reference to the Inland Revenue Board of Malaysia, include the provision of:
a) food, beverages, recreation or hospitality of any kind; or
b) accommodation & travel for the purpose of facilitating entertainment of the kind described in a) above;
by an employee, with or without consideration (whether in cash or in kind) paid in connection with carrying on a business.
Recreation or hospitality would include:
a) a trip to the theme park or a recreation centre;
b) a stay at a holiday resort;
c) tickets to a show or theatre; and
d) gifts & give-aways.
Section 18 subsection 33(1) & paragraph 39(1) under the Malaysian Income Tax Act 1967’s provides that entertainment expense is either not allowed for deduction against the business’ gross income, or allowed for deduction at 50% or 100% of the gross income. Entertainment being provided to employees only & of its qualifying principles for deductions under the Malaysian ITA, is much less of a topic to be discussed in here.
Entertainment that is related wholly to sales, & is provided to customers, dealers, agents, distributors, etc. is to be examined in depth herein. Entertainment as broadly defined above, if provided to non-employees with an intention to induce business decisions to the provider’s advantage, is itself a gratification having the meaning in the Malaysian Anti-Corruption Commission Act 2009. Likewise, an employee who corruptly accepts entertainment from the organization’s suppliers, vendors or prospective business partners, is in a position of committing an offence.
You may refer to the MACCA 2009 which defines gratification as corruptly giving or accepting:
a) money, donation, gift, loan, fee, reward, valuable security, property or interest in property being property of any description whether moveable or immovable, financial benefit or any other similar advantage;
b) any office, dignity, employment, contract of employment or services & agreement to give employment or render services in any capacity;
c) any payment, release, discharge or liquidation of any loan, obligation or other liability, whether in whole or in part;
d) any valuable consideration of any kind, any discount, commission, rebate, bonus, deduction or percentage;
e) any forbearance to demand any money or money's worth or valuable thing;
f) any other services or favour of any description, including protection from any penalty or disability incurred or apprehended or from any action or proceedings of a disciplinary, civil or criminal nature, whether or not already instituted, & including the exercise or the forbearance from the exercise of any right or any official power or duty; and
g) any offer, undertaking or promise, whether conditional or unconditional, of any gratification within the meaning of any of the preceding paragraphs (a) to (f).
Given that Malaysia’s Corruption Perception Index (CPI) 2019 score is 53 out of 100, sealing the position at 51 out of 180 countries surveyed, it is rather frivolous imagining bribery is not happenstance but that it is a necessary evil amongst individuals of questionable ethics.
Now, with the MACC (Amendment) Act 2018 enforcing corporate liability by June 2020, the senior leadership of any company must be more cognizant of the complexities involved in providing above described Entertainment to business relations.
So, how does a company diligently procure `entertainment’ for business purposes?
Strengthening relationships through actively or passively exchanging business courtesies should be done moderately to limit oneself from exposure to bribery risks, or even the perception of an inappropriate nexus to scoring business advantages. For example, a reasonable pace would be providing courtesies bearing nominal value during legitimate business-related occasions like trade shows & business meetings, in contrast with systematically giving courtesies regardless the value to the same recipient over a period of time.
Similarly, offering hospitality like travel & lodging to business relations during an official business trip (eg. to visit a company’s manufacturing plant) is appropriate as far as the bona fide agenda of the business trip itself. However, any side trips for recreation in conjunction with the timing of the business trip, may be symptomatic of a bribery action.
Entertainment that is illegal or indecent, be it disguised as if it is spent legitimately for business or running afoul of accurate financial reporting must be prohibited.
Cash equivalents such as vouchers redeemable for cash or anything of value will be a direct violation of some established anti-corruption laws, like the Foreign Corrupt Practices Act of the US & the UK Bribery Act. The Malaysian Anti-Corruption Commission Act will not be so far off from these laws. So, as Malaysian regulators get progressive with enforcing Section 17A of the MACCA, organizations are encouraged to learn fast that the best practices of giving & accepting business courtesies are in modesty & are not indicative of any lurking corrupt intent.
Post Tags: Transparency International Malaysia, corruption perception index, Seksyen 17A Akta SPRM (Pindaan) 2018, Section 17A MACC Act (Amendment) 2018)Like what you read? Share this post.
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