This article first appeared in The Edge Financial Daily on October 11, 2017

KUALA LUMPUR: Malaysia should consider cutting income taxes for both personal and corporate taxes in the upcoming National Budget 2018.

The government should cut its current corporate tax rate by 1% to 23% from 24% currently as a move to increase business competitiveness and productivity in Malaysia, according to the Socio-Economic Research Centre (SERC).

“Moving forward [from a business perspective] particularly in the medium term, we believe there should be an outright revision of corporate tax rates down to 23% in order to have a competitive tax system in place to encourage more business and investment activities,” said SERC executive director Lee Heng Guie.

“An increased flow of tax-free capital will boost investments and production [in the country],” Lee told a media briefing yesterday.

In addition, Lee opines that personal income tax rates should be cut by between 1% and 2% in order to boost the disposable income of the wage earners and spending power.

“We believe the government should also increase tax reliefs and rebates related to education and medical expenses, such as those for chronic diseases, which should be raised to RM8,000 from its current RM6,000,” Lee said.

Meanwhile, Lee commented that the government is expected to achieve the budget deficit target of 3% of gross domestic product (GDP) for 2017. He anticipates that the deficit is set to narrow to 2.8% of GDP in 2018.

“The fiscal deficit will definitely reach 3% of GDP for the rest of the year,” Lee said.

“Our fiscal deficit has improved very much compared to 2009 when it was 6.7% of GDP, compared to just 3% this year, and we will likely see a continued reduction moving forward, reducing to 2.8% of GDP for 2018,” Lee said.

Lee also opines that GDP growth will moderate in the second half of 2017 (2H17) due to a lower base effect seen for the rest of the year.

“Our projection for GDP growth for 2H17 is expected to average at about 5.3% compared with 5.7% in 1H17 largely because of a higher base effect,” said Lee.

He added that GDP growth for the third and fourth quarters of 2017 is expected to come in at 5.5% and 5.3% respectively.

SERC’s overall GDP growth target for the full year stands at 5.5%, still driven mainly by private consumption and investment.

Lee added that the nation’s medium-term economic outlook remains positive, registering an average annual growth of 5.1% between 2016 and 2020, compared with 5.3% between 2011 and 2015, driven by the services, manufacturing and construction sectors.

Nevertheless despite the various challenges ahead, Lee opines that the domestic economy remains on growth track, thanks to the expected strong export driven by increased global demand and higher commodity prices. He expects export growth to be at 7.5% to 9.5% a year between 2018 and 2020.