THE economic outlook for Malaysia is very bright, and this is reflected in the 5.9% second quarter gross domestic product (GDP) growth year-on-year together with strengthening of the ringgit to 4.12 to the US dollar. The ringgit is predicted to strengthen further, and the budget deficit is likely to be less than 4% of GDP in 2025.
With such a robust economic outlook, the government should not introduce any new taxes which may dampen the positive forecast and add to the cost of doing business. The rise of the ringgit will certainly help the rakyat in their imported purchases such as medicines, basic foodstuff like rice and vegetables, etc. It is important for the reduced imported prices to be passed on to consumers, and this is where the Ministry of Domestic Trade and Cost of Living must play a critical role in ensuring that the reduced prices are passed down rather than profits ending up in the pockets of businessmen.
What can be ruled out?
There is talk in the market that inheritance or wealth tax is on the radar screen of policymakers. This is unlikely to happen at this stage because introducing such taxes would drive capital away from Malaysia. This is the time to encourage wealthy individuals to bring back their wealth to Malaysia when the ringgit is strong and invest in productive assets that will generate employment and grow the economy.
It is unlikely that corporate tax (24%), highest personal tax rate (30%) and Sales and Service Tax (SST, 6% and 8%) will be increased. There also does not appear to be a case to justify any reduction although our competitors in the region have lower tax rates, such as Thailand 20%, Indonesia 22% and Singapore 17%. The differential needs to be maintained because our tax collection to GDP is the lowest in the region at about 12% while our neighbours are at 15% or higher.
There is no necessity to introduce new taxes at this point. Although there have been discussions around possible introduction of a carbon tax, Malaysia can take a “wait and see” attitude on how our neighbours are implementing this tax before we do the same, because the cost of administering this tax to taxpayers and to the administration may outweigh the yield.
Although capital gains tax was introduced last year to tax gains from sale of unlisted shares owned by companies, LLPs, trusts and cooperatives, it would not be advisable to widen the scope of this tax to include individuals or any form of securities that are traded in the open market through regulated exchanges because any uncertainty introduced in any new legislation to widen capital gains tax may curtail restructuring, reorganising and reconstructing activities connected with merger and acquisitions.
Although there are lots of advocates for the reintroduction of Goods and Services Tax (GST), it is unlikely to happen. We can figure that out from various statements made by ministers. It may be introduced in the future but is unlikely to happen in this Budget. What could happen is the tweaking of SST to widen the number of taxable entities and to widen the services that will be within the SST net.
Finally, do not expect either the Inland Revenue Board or the Royal Malaysian Customs Department to reduce their enforcement activities through audits and investigations. You can expect increased scrutiny and challenges coming from both authorities.
What should be ruled out is for both tax authorities not to become overzealous in challenging positions taken by diligent taxpayers in the desire to meet their key performance indicators. The cost of such challenges to taxpayers is significant in terms of time, money and agony. It is very important for the tax authorities to build a good relationship with taxpayers which involves compromise and the willingness to listen.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).
