Corporate Tax

Finance Minister: Company Earnings Tax Discount Doable if Tax Base Is Broadened and Development Strengthened | Malaysia

Malaysia’s corporate tax rate is among the highest in ASEAN. Singapore has the lowest values ​​with 17 percent, Vietnam, Thailand and Cambodia with 20 percent and Indonesia with 22 percent. – Picture by Ahmad Zamzahuri

KUALA LUMPUR, Sept. 2 – Malaysia cannot afford a corporate tax cut from the current 24 percent unless the country’s tax base is broadened and the country maintains above-average growth, Finance Minister Datuk Seri Tengku Zafrul Abdul told Aziz today.

“If you look at corporate income tax, it represents a large chunk of federal government revenue, roughly 32.8 percent of federal government revenue including petroleum income tax and given the widening budget deficit, which is expected to be around 6.5 percent will be due to the pandemic this year.

“(Therefore) Malaysia, I believe, is not in a position to afford a tax rate cut at this point because one of the problems was our tight tax base. Until we can broaden our tax base and maintain above-average growth, we can consider lowering the corporate tax rate, ”he said in an interview with Singapore’s The Straits Times, entitled“ Beyond the Pandemic: Malaysia’s way forward ”.

However, with the global trend towards lower corporate taxes, Malaysia may need to review its corporate structure at some point in the future in order to adjust to broader economic growth in the medium term, he said when asked if Malaysia was considering cutting its corporate tax 15 percent in the next 3- 5 years.

Malaysia’s corporate tax rate is among the highest in ASEAN. Singapore has the lowest values ​​with 17 percent, Vietnam, Thailand and Cambodia with 20 percent and Indonesia with 22 percent.

“Still, lower corporate tax isn’t the only component that attracts Foreign Direct Investment (FDIs). There are other key factors like good infrastructure, human resources and clear regulations, ”said Tengku Zafrul.

In a recent pre-budget statement, the Ministry of Finance (MoF) stated that the government was considering measures to increase tax revenue through better tax compliance and address the problem of lost revenue, particularly related to the smuggling of high-duty goods, which estimated at 5 billion RM per year.

In a pre-budget statement, the MoF said that recommendations in the study include implementing the Special Voluntary Disclosure Program (SVDP) for indirect taxes administered by the Royal Malaysian Customs Department.

The government is also aware that an enabling investment environment, be it for foreign or domestic direct investment, encompasses many aspects, including economic and political stability, consistent and transparent policies, efficient labor market, level of infrastructure facilities, solid governance structure, strong legal framework and a decent quality of life in Malaysia.

“Tax incentives, including taxes, are one of the many factors that can attract investment; They can play an important role as a strategic policy tool to drive investment in Malaysia. “

To combat lost revenue, the MoF said in the 17-page document that the Multi-Agency Working Group, chaired by the MoF, was to formulate strategies to curb smuggling through the involvement of the Malaysian Anti-Corruption Commission and the National Center for Financial Crime Prevention.

Tengku Zafrul commented on investor and FDI confidence, admitting that it has been hard hit by the Covid-19 pandemic and, to some extent, the domestic political situation.

“But despite all this, we recorded a much better investment inflow in the first half of 2021 compared to the first half of 2020, especially when it comes to foreign direct investment. So if you look at our vaccination rate and more sectors of the economy open up. “On the upside, we generally expect better investment prospects.”

Malaysia remained a preferred investment destination due to its well-developed investment ecosystem.

“In addition, domestic direct investment (DDI) is just as important, and we continue to value it,” said Tengku Zafrul.

On other developments, the finance minister said the government would not tap into national reserves to fund the upcoming budget.

When asked if Malaysia was allowing the private sector to play a bigger role in infrastructure funding, he said it was the right time to revitalize more public-private partnerships, citing the 5G infrastructure project.

“Other infrastructure projects that may require private sector involvement will be recently announced rail projects.”

Regarding political stability, he said the Keluarga Malaysia concept, introduced by Prime Minister Datuk Seri Ismail Sabri Yaakob, was geared towards continuity and specifically addressing the challenges of Covid-19.

“Political leaders must strive for political stability because, as we know, political turbulence is too costly for our economy and affects investor confidence in the short, medium and long term.

“It is even more important that we basically have to regain the Malaysians’ trust in the government’s exit strategy. We need to work together as a family or Keluarga Malaysia, ”he said.

Additionally, Tengku Zafrul is optimistic that they will work together with opposition politicians to help rebuild the nation and build a more resilient and sustainable future for all.

“For us in the Ministry of Finance, like the 2021 budget, we will endeavor to consult as many parties as possible when preparing the 2022 budget. In fact, we have started stakeholder engagement.

“We will examine how we can get feedback that we can incorporate into our resilient reformed budget.

“I am optimistic that a safe transition will be created for the 2022 budget and that the government will have sufficient space and support to navigate this difficult terrain in the short to medium term to accommodate the economic recovery,” he said. – Bernama

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