MALAYSIAN businesses and investors are highly adaptable. Over the past year, businesses and investors have had to deal with the newly introduced sales and service tax, digital service tax, sugar tax, changes to the Labuan tax regime and the earning stripping rules.
The government’s promise of no new taxes in the upcoming Budget 2020, which is scheduled to be tabled on Friday, will provide businesses with the much needed certainty that there will be no more “new surprises” at least in the coming year and alleviate concerns over rising cost of doing business.
While we do not expect to see any reduction in corporate income tax rates in Budget 2020, it would be a boost to businesses if the reduction of corporate income tax rate by 1% to 4% for incremental chargeable business income, which was applicable for years of assessment 2017 and 2018, could be further extended.
Various parties from individuals, property developers to real estate agents have lobbied for a review of the real property gains tax (RPGT) of 5% for Malaysian citizens and permanent residents for disposal of properties which have been held for more than five years.
Although this had led to an increase in government revenue, any incremental RPGT should be aimed at mitigating speculation to curb rising cost of properties and should not increase the burden on bona fide property owners in the current dampened property market.
Perhaps the government can consider allowing 0% RPGT on disposal of properties by Malaysian citizens after the 10th year?
Simplify tax policies and provide greater certainty on tax treatments
As the country is in a fiscal deficit position and the government is working towards achieving fiscal consolidation, we are unlikely to see an abolishment of any other taxes.
To help Malaysian businesses, the government should look at simplifying tax policies and providing greater certainty on tax treatment.
For example, the adoption of several new Malaysian Financial Reporting Standards (MFRS) such as the MFRS 15 and MFRS 16 have resulted in a divergence between accounting recognition and tax recognition.
As a result, taxpayers have to maintain separate records to reconcile the accounting and tax information and additional tax adjustments have to be made todisregard notional accounting adjustments.
From a tax policy perspective, if the tax treatment can be converged with accounting treatment, this would significantly simplify the tax filing process, especially given that the tax impact of these divergences is largely timing in nature.
Cashflow management is also important in the current challenging economic environment, and this is a challenge particularly felt by small and medium enterprises (SMEs).
To ease cashflow constraints, SMEs should be allowed to pay tax instalment payments on a quarterly instead of monthly basis.
Furthermore, given the volatility in the overall global economy as a result of the US-China trade war, fluctuating oil prices and currency pressure, it is increasingly difficult to gauge a business’ profitability.
Businesses should be provided with additional opportunity to revise their estimates of tax payable, rather than being limited to the 6th and 9th month revisions.
Business-friendly incentives and tax policies to encourage digitalisation
It has always been difficult for SMEs to tap into traditional funding. The Government should continue with its efforts to provide more attractive incentives to investors to encourage private equity, venture capital funding and crowd-funding for SMEs.
Clear guidelines to qualify for such incentives should be issued quickly once the incentives are announced in the Budget as investors are unlikely to commit unless there is clarity.
Digitalisation is the way forward for all businesses. Measures should be put in place to encourage digitalisation.
The Inland Revenue Board (IRB) is known to take the view that payments for the purchase or use of online applications and software tantamount to royalty even if there is no exploitation of the underlying copyright or know-how.
Royalty is subject to a 10% withholding tax although the rate may be reduced under certain tax treaties.
The interpretation of “royalty” is an area which is commonly in dispute between taxpayers and the IRB, and several cases have been brought to court. Although withholding tax is the tax of the non-resident, Malaysian businesses often have to bear the withholding tax on behalf of the non-resident to procure such online applications and software hence adding to the cost of doing business.
If we want businesses to adopt technology, it is timely for the IRB to embrace a more business-friendly tax policy such that businesses would not be deterred from using Google Ads, Facebook advertising, online applications, cloud computing, etc.
Businesses also need guidance and resources to move towards digitalisation. In addition to incentivising businesses who adopt technology, targeting the incentives at companies in the ICT sector to encourage them to collaborate and assist businesses, especially SMEs, to move towards digitalisation may accelerate the process.
Lim Wai Yin is executive director – corporate tax at KPMG Tax Services Sdn Bhd.