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Companies need to save for a rainy day too

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Kassim SA wonders why certain major firms are asking for government aid and customer understanding when they could have set aside their huge profits in the past for a rainy day.

In a recent article, I questioned the pleas by some companies, large and small, for financial aid from the government.

They apparently needed the aid to enable them to tide through the global economic crisis due to the Covid-19 lockdown.

Indirectly, these companies are asking the Rakyat to chip in with the aid – for where else can the government get the money to provide financial aid to these companies other than from the taxes paid by the people?

For the record, according to the latest available annual report of Inland Revenue Board for 2017 (see page 6), the government collected a total of RM123.3bn from direct taxes. Of this amount, RM68.8bn or 55.8% came from companies.

To my simple mind, based on a tax rate of 24% on their taxable income, these companies must have generated adjusted earnings to the tune of RM287bn in 2017. And after meeting their tax liabilities, they would still end up with after-tax funds of around RM218bn.

The question is how much of this amount did these companies, with profits of billions of ringgit in the past, set aside for a rainy day, ie for a time when their ability to generate an income would be hit by circumstances beyond their control?

If they had set aside a portion of those funds for such a rainy day, they surely would now have the funds needed to pay recurring costs such as salaries, rentals, other overheads and their trade creditors for several months.

And they would have been able to continue paying these expenses until such time when the sun shines again or until their rainy-day funds run out and they can no longer continue.

Kassim SA, a long-time reader of Aliran, is a crusader of the truth based on facts

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