THE Malaysian Finance Minister delivered the 2020 budget proposals on Oct 11,2019 following extensive consultations with a total of 12 Focus Groups, involving over 2,500 people representing over 1,200 organisations.
The Budget 2020 is seen as the first step towards realising the objectives of the Shared Prosperity Vision 2030 which aspires to achieve development for all Malaysians, address wealth and income disparities as well as build a united, prosperous and dignified nation.
Themed “Driving Growth and Equitable Outcomes Towards Shared Prosperity”, there were four thrusts anchoring the 2020 Budget:
* Driving Economic Growth in the New Economy and Digital Era
* Investing in Malaysians: Levelling Up Human Capital
* Creating a United, Inclusive and Equitable Society
* Revitalisation of Public Institutions and Finances
The Budget outlined 15 key strategies aimed at leading to a new growth trajectory under the Shared Prosperity Vision 2030.
The total budget for 2020 amounts to RM297 billion made up RM241 billion for operating expenditure and RM56 billion for development expenditure.
Government revenue is expected to touch RM244.5 billion in 2020 but this is based on a rather optimistic growth rate of 4.8% in 2020 (4.7% for 2019) and a 3.2% fiscal deficit for 2020 (3.4% for 2019).
Overall, the 2020 Budget was well-crafted, wide-ranging in terms of its coverage, very inclusive and a responsible budget.
Given the economic headwinds being experienced as well as the trade war between the US and China, it is felt that the strategies outlined and initiatives outlined are appropriate and timely.
The initiatives to continue to make Malaysia a desirable investment destination, create employment opportunities, pushing Malaysia into the digital age and creating opportunities for young Malaysians to own a home are good initiatives.
From a tax perspective, there were no significant reforms of the tax regime but a plethora of incentives have been either proposed or extended to boost tourism, local consumption, the Electrical & Electronics (E&E) sector as well as Small Medium Enterprises (SMEs).
The revamping of the tax incentives framework is timely. Notwithstanding this, the Government did take note of the low tax revenue to GDP ratio which needs to be improved in the years to come.
The concern, however, is whether the expected tax revenue for 2020 will be achieved in the context of no new taxes (other than the service tax on digital services taking effect from 1 January 2020), no widening of the scope of the existing sales tax and service tax as well as no new initiatives to enhance tax compliance.
The move to a cashless society is starting and needs to keep going. Perhaps, we should consider allowing the Inland Revenue Board (IRB) to have access to cash transaction reports issued by banks to Bank Negara Malaysia as is done in the US for all transactions of US$10,000 and above.
Being a desirable investment destination requires a clear focus and targeting. As such, MIDA must clearly be the lead investment agency and must also focus on following up on investors in terms of compliance with the investment terms and providing effective facilitation.
The revamping of the existing tax incentives legislation/framework is timely and it is hoped that the new legislation will be ready before the end of 2020 and allows for clarity and flexibility.
The various transfer payments announced for the lower income group are more focussed and targeted and this approach must be continued.
The various allocations/grants via various agencies require clear guidelines, effective management and must achieve the outcomes expected. In addition, the various incentives announced as well as extensions in respect of existing tax incentives must be gazetted quickly so that there is certainty for the investors.
There is also clearly a need to review the various agencies that exist which handle similar objectives and social roles. We must avoid duplication and must achieve efficiencies and not merely allow different Ministries to have their way in terms of continuing to carry out their tasks in the same way that has been done in the past.
Some mergers and consolidations are essential and vested interests must be dealt with effectively.
The efficiency of the tax agencies can continue to be enhanced with digital tools, technology and effective training as well as by learning from regional and international agencies and be absolutely clear on what is meant by data analytics so that data is used effectively to enhance tax revenue collection.
Data sharing among various agencies needs to be enhanced so that we do not work in silos. As such, the need for a national data centre should be looked into to allow for efficient sharing and thus avoid asking taxpayers for the same information to be reported again.
We must be proactive in terms of going the extra mile to make tax compliance easier and effective. As such, tax administrative improvements need to be made in the income tax legislation.
Cooperative compliance initiatives between the IRB and large corporate taxpayers needs to be piloted and eventually become commonplace among large corporate taxpayers.
This budget did not see a clear focus on tax reforms. Other than the revamping of the tax incentives framework/law due to be ready on Jan 1,2021 and the introduction of a Tax Identification Number or TIN in 2021, no other substantive
tax changes were announced. Much more was expected so that the tax system can be made more friendly, efficient and easier to comply with.
The merger of the Special Commissioners of Income Tax and the Customs Appeal Tribunal was announced but it remains unclear as to what benefits there would be for taxpayers. Will a single Commissioner be allowed to hear an appeal instead of a panel of three as is the case now?
There is a need to reduce the backlog of income tax appeals at the Special Commissioners of Income Tax.
From a business perspective, some form of convergence between accounting treatment and tax treatment would be welcomed. The slight increase in the full tax deduction in respect of small value assets up to a specific amount is actually a deterrent towards making compliance easier for the non-SMEs.
The change in the base acquisition price of real property acquired prior to 2013 so as to lessen the real property gains tax applicable on properties held for more than five years is welcomed but we cannot expect the Government to keep changing its stance so as to be seen as being attentive to the complaints of the Rakyat.
Once a decision is reached, after due consultation, we expect the Government to stay the course instead of changing its mind and watering down the impact of a measure.
It is also essential for professional bodies and chambers of commerce/trade associations to focus on the needs of the nation and not primarily on their specific needs all the time—we need to have a macro view.
We need to be proactive and speak up and stop focusing only the needs of the members of the association or body. We need to start thinking of the needs of our nation!
It is suggested that the following should be considered by the Government in its drive to ultimately make the tax system a balanced and fair one:
the introduction of tax expenditure statements wherein the cost to the Government in terms of the estimated tax revenue foregone from the introduction of tax incentives or special deductions should be seriously considered continue to focus on reducing the tax gap by tackling the underground economy/informal sector as we cannot keep relying on those who are compliant to keep paying more taxes the need to improve the tax to GDP ratio is essential as Malaysia has a low tax base where 16.3% of companies registered with CCM are reported to be paying taxes.
In addition, 15.2% of individuals are paying taxes i.e. 2.27 million taxpayers pay taxes out of the 14.9 million involved in the labour force out of a population of 32.4 million continue to look at reducing the tax leakages and reviewing tax incentives in the form of double or special deductions so that there is a clear cost-benefit analysis adopted.
* A low corporate tax rate should replace all the double and special deductions.
* Personal tax rates need to be reviewed so that the various income bands can be widened to limit the bracket creep that currently exists.
The introduction of a 30% tax rate for resident individuals on chargeable income exceeding RM2 million may raise about RM100 million in tax revenue but there was a missed opportunity to also adjust the other income bands and reduce bracket creep and yet not lose any tax revenue which would have assisted the middle class.
It is unclear at this stage as to what is the long-term tax policy of the Government with regard to where personal tax rates are heading.
There is a need to consolidate personal reliefs as that would make it easier to administer and also make for easier compliance. We do not need to keep increasing personal reliefs or create new types of personal reliefs as this will only impact the 15.2% of the population instead of a majority of the population.
There is a need for a clear statement on what is the policy in respect of corporate income taxes. Due to the growing competition among the neighbouring countries, a phased reduction of 1% annually should be considered so that ultimately we will reach a corporate tax rate of 20%.
The introduction of a TIN to be allocated automatically is a step in the right direction and this must be followed with a clear narrative on the tax obligations that individuals/businesses need to be aware of so that tax compliance will ultimately be on the uptrend.
As part of the measure to reduce tax leakages, the continuing proliferation of duty free islands and free zones needs to be curtailed. In fact, the real value of having duty free locations needs to be evaluated. Making it easier for businesses to bring in duty free materials to be processed into exported goods is essential but another approach should be considered so that businesses will undertake self-assessment and comply with the relevant rules/law.
The need to slowly widen the scope of the SST must be clearly undertaken so that the tax revenue base is broader.
The Budget 2020 is a comprehensive and wide-ranging budget which aims to push for greater growth amidst a challenging economic climate, while still focusing on relevant initiatives to move the country forward towards digital
transformation, enhancing productivity, decreasing unemployment, embracing inclusivity and enhancing Malaysia’s ability to draw in foreign investments.
Strong emphasis has also been made to improve the well-being of the Rakyat, particularly the B40 (lower income) group by way of targeted initiatives.
There is so much more that needs to be done and we are hopeful that the Government will continue to take bold strides in moving Malaysia towards the path of a high income nation and ultimately a developed nation.
Dr Veerinderjeet Singh has over 35 years of experience in the tax profession as a consultant, academic, author and tax observer.
He is an adjunct professor at Monash University, Malaysia. He is the current president of the Malaysian Institute of Certified Public Accountants, a Council member of the Malaysian Institute of Accountants and a former president of the Chartered Tax Institute of Malaysia. He has also published various books, chapters and articles in local and international publications. He has been a regular speaker/presenter/moderator at various local and international seminars and conferences. He is currently non-executive chairman of Axcelasia Inc (listed in Singapore) which aims to provides professional consultancy services in the Asean region.
Did you find this article insightful?