This article first appeared in The Edge Malaysia Weekly on November 5, 2018 - November 11, 2018

THE Pakatan Harapan government’s maiden budget, announced last Friday, is likely to have left many Malaysians and foreign investors relieved. Prior to its release, speculation was intense over the possible introduction of new taxes, given the gap in government finances with the abolishment of the Goods and Services Tax.

Many agree that the new taxes introduced and existing taxes raised in Budget 2019 do not impact the man in the street significantly as they apply to selected sections of the population.

“For example, the RPGT (Real Property Gains Tax) and stamp duty as well as the departure levy are applicable only to selected portions of the population, namely those dealing with property valued at RM1 million or more, or those who travel overseas. There is also a sugar tax, which affects everyone. However, the amount is not significant and hopefully, encourages lower consumption of sugar,” says Amarjeet Singh, Malaysia tax leader at Ernst & Young Tax Consultants Sdn Bhd.

Axcelasia Inc chairman Dr Veerinderjeet Singh says, “Overall, I would say that there is no real substantial change in taxes in this budget, except for the tightening of tax incentives, which is a good thing. What is pertinent is that the tax reform reviews will continue, which means we can expect to see more tax reforms and changes in the future.”

As expected, new taxes such as a soda tax on sugar sweetened beverages will be introduced on April 1 next year, and a digital tax will take effect on Jan 1, 2020.

Sugar sweetened beverages will be subject to excise duty, which has been proposed at 40 sen per litre for non-alcoholic beverages containing added sugar of more than 5g per 100ml drink, and fruit or vegetable juices containing added sugars of more than 12g per 100ml drink.

A digital tax is set to be imposed on online services imported by consumers, with the foreign service providers being required to register themselves with the Royal Malaysian Customs Department (RMCD) and remit the relevant service tax on the transactions. Some examples of these services are downloaded software, music, video and digital advertising.

“This move to tax the digital economy is in line with the intention of other countries and is a bold move as Malaysia will be one of the first to introduce it. There are further areas that need to be clarified, such as how the foreign service providers will register with RMCD and what enforcement rules and reporting mechanisms are in place,” says KPMG Tax Services executive director of indirect tax Ng Sue Lynn.

“It is noted that a new provision will be introduced in the Service Tax Act 2018 to cover this. As this proposal is expected to be effective from Jan 1, 2020, the RMCD has one year to study, analyse and come up with an efficient mechanism,” she adds.

The government will also be looking to impose service tax on imported services such as architecture, graphic design, information technology and engineering design services starting Jan 1 next year.

Many say this is a good move as it will put the local service providers on the same footing as their foreign counterparts.

Meanwhile, the RPGT rate for properties disposed of after five years will be increased. Companies and foreigners will see the rate increased to 10% from 5% currently while for Malaysian individuals, it will be raised to 5% from 0%. Nevertheless, exemption will be given to low-cost, medium-cost and affordable housing with prices below RM200,000.

Stamp duty on properties valued at over RM1 million will also be increased to 4% from 3% at present.

Unfortunately for the gaming sector, it will be impacted by this budget after 14 years of stable taxes. The annual fee for a casino licence will be increased to RM150 million from RM120 million while casino duties will be raised to 35% on gross collection. The annual fee of a machine dealer’s licence will be increased to RM50,000 from RM10,000, and gaming machine duties will rise from 20% on gross collection to 30%.

Numbers forecast operators will also see the number of special draws reduced by half.

Taxes that had been talked about earlier but not introduced are capital gains tax, inheritance tax and carbon tax. Also, to the relief of tobacco companies and breweries, they have escaped additional excise duties this time around.

Meanwhile, outbound travellers will have to start forking out a minimal sum for a departure levy of RM20 to Asean countries and RM40 to other countries starting June 1.

Tax consultants say what is interesting in this budget is the government’s decision to place a seven-year time limit for the carrying forward of losses and allowances for tax reliefs, which is a practice in line with countries globally. This time limit will apply to unutilised business losses, capital allowances, reinvestment allowances, investment tax allowances and pioneer losses.

There will also be a special voluntary disclosure programme. From Nov 3 this year to June 30 next year, taxpayers who voluntarily disclose their unpaid taxes will receive reduced penalty rates.

The rates differ depending on the disclosure date. Unreported income disclosed between Nov 3 this year and March 31 next year will see a 10% penalty imposed on the tax payable. Disclosures made from April 1 to June 30 next year will see a penalty of 15%. After the programme ends next June 30, the penalty rates will range from 80% to 300%, based on existing laws.

PwC Malaysia tax leader Jagdev Singh says this is a good move to encourage taxpayers to come forward, but the punitive rates need to be applied with caution.

“They should apply only to taxpayers who have wilfully or intentionally under-declared or not declared taxes. Taxpayers who have adopted reasonable positions, which may not necessarily be in agreement with those of 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,” explains Jagdev.

The raising and introduction of taxes will certainly add to the government’s coffers, although the impact is expected to be minimal. Based on its estimates, these budget measures will rake in about RM1.4 billion in additional revenue next year.

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