This article first appeared in The Edge Malaysia Weekly on October 8, 2018 - October 14, 2018
CORPORATE taxes collected by the government is the largest revenue contributor to the nation’s coffers. According to the revised revenue estimates for 2017, income tax collected from companies amount to RM67.82 billion, representing 37.6% of the RM180.19 billion tax revenue of the country.
Since 2016, the corporate income tax rates for companies with paid-up capital of more than RM2.5 million have been reduced to 24% from 25%. Compared to our neighbours in the region, Malaysia is only better off than Indonesia, which has a corporate income tax rate of 25%.
Singapore takes the lead in the lowest corporate tax rate in the region at 17%, while Thailand and Vietnam tie in second place with corporate tax rates at 20%.
Notably, when corporate tax was reduced to 24% in 2016, collection for companies shrunk by 0.09% year on year to RM63.62 billion. Income tax revenue had also contracted in the previous year before corporate tax rates were reduced. It fell 2.39% to RM63.68 billion in 2015.
At this juncture, hoping for a further reduction in corporate tax rates could be a dream, especially since the nation has a hole to plug with GST contribution ceasing to exist. Increasing corporate taxes is one quick fix to the problem, but would be an unpopular move.
A rough calculation shows that a 1% increase in corporate taxes would bring about RM5.12 billion addition to the nation’s coffers, assuming that the amount of corporate taxes businesses are paying grows at a rate of 6% based on the Ministry of Finance’s corporate revenue estimates in 2017 and 2018.
At RM5.12 billion, it would only make up one-quarter of the RM23 billion shortfall from the Goods and Services Tax revenue which has been replaced with Sales and Services Tax.
Would companies be made to pay more to help finance the nation?
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