02 NOV 2018 / 22:30 H. – The Sun Daily
Finance Minister YB Lim Guan Eng has decided to take the bull by the horns and present a budget that is not only comprehensive and inclusive but also deals with current and future issues.
Overall, Budget 2019 casts a wide-sweeping net in announcing measures to address the ballooning levels of debt, the need for prudent spending, and the urgency to increase other sources of revenue to replace GST income.
In the lead-up to Budget 2019, there were expectations of the possible introduction of a number of new taxes including capital gains tax, inheritance tax, environmental-related taxes and taxes addressing the digital economy. Whilst most of these will not see the light of day for now, some initiatives to tax the digital economy were introduced by expanding the coverage of service taxes. Whilst this is not seen as a comprehensive digital tax, but more of a digital services tax, it is the start of introducing fiscal measures to deal with the changes in how businesses are conducted.
What Does Budget 2019 Mean To Corporates?
Whilst there are no significant new taxes which directly impact corporates, or changes to the headline tax rate of 24%, Budget 2019 introduced several tightening measures, which include a seven-year limitation on carry-forward of losses, capital allowances and unabsorbed incentives.
Sector-wise, companies in the gaming sector will have to bear additional duties. Malaysian companies with Labuan transactions (particularly Labuan leasing companies) will also have to review the feasibility of the current structures, given the new measures imposed on such transactions.
On a positive note, companies involved in Industry 4.0 and the broader tech sector stand to gain from additional funding to promote growth in this sector.
Making The Fiscal Regime More Business Friendly
The Government has heard requests to make the tax system more business-friendly. The service tax exemption for business-to-business (B2B) transactions between registered companies makes perfect sense in eliminating the cascading effect of tax, resulting in lower costs to such businesses. This will certainly reduce administrative burdens on businesses, which would have otherwise needed exemptions on a case-by-case basis. SMEs will also see their corporate tax rates reduced by one percent on their first RM500,000 of income.
Improving Compliance Levels
We are not new to tax amnesty programmes – similar programmes were previously implemented in 2015 and 2016. However, the rates offered during this Budget appears more attractive compared to the previous programmes, which only offer a reduction of 10% to 20% from the original rates.
Budget 2019 also puts in place penalties post the special voluntary disclosure period, which are far more punitive. Although this is a good move to encourage taxpayers to come forward, the punitive rates need to be applied with caution, as they should only be applied on taxpayers who have willfully or intentionally under-declared or have not declared taxes. Taxpayers who have adopted reasonable positions which may not necessarily be agreed to by the tax authorities should not fall under this category of ‘punitive’ rates.
Given the slow take-up rate in previous programmes, it is also necessary to urge identified ‘high-risk’ taxpayers to come forward with a voluntary disclosure.
Sales and Service Tax (SST)
The expansion of the list of services under the Sales and Service Tax (SST) regime to include import services is necessary to ensure a level playing ground, especially when services can be sourced locally.
Budget 2019 also introduces service taxes on digital services. Although this is a good move in ensuring that imported services are not provided preferential treatment, the Budget still does not tackle the issue which plagues many developing and developed countries, i.e. the taxing of the digital economy itself.
Impact On Man On The Street
Broadly, whilst there are no changes in tax rates or reliefs (other than the reliefs provided for EPF contributions and life insurance premiums), there are a number of initiatives to assist the lower and middle-income groups. Continuing the previous trend, there are a number of measures to help people get onto the home ownership ladder. Subsidies will be more targeted going forward, and cash handouts in the form of Bantuan Sara Hidup are to continue. It is also timely to see specific measures on employing those above 60 years old.