Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on November 20, 2017

KUALA LUMPUR: Predicting a cut in Malaysia’s corporate tax by 2019, a tax expert said it would be a catalyst for economic growth, and higher productivity and competitiveness.

Ong Guan Heng, executive director of corporate tax at KPMG Tax Services Sdn Bhd, said many countries have resorted to slashing their corporate tax rate and turning to a more broad-based indirect tax to raise revenue.

“If you ask me, anything below 20% is already good for corporations,” Ong told The Edge Financial Daily. “The spillover effect is huge.” Malaysia’s current corporate tax rate is 24%.

“Of course, it will be a challenge to the tax authorities, especially if the rate is to be pulled down to 20% or below. While growth must not be stunted by taxes, the government must also consider the delicate balancing act between fiscal health and the tax regime,” he added.

Earlier, the Associated Chinese Chambers of Commerce and Industry of Malaysia called on the government to devise a clearer road map to reduce the corporate tax rate.

Suggesting a gradual reduction in the rate, the association expressed hope that such a plan is announced in Budget 2019.

Second Finance Minister Datuk Seri Johari Abdul Ghani, when asked about the possibility of a corporate tax rate cut, said: “The government is open to all suggestions, but 24%, I think, is already at a very competitive level.”

“The corporate tax rate has been lowered from 40% in the past to 24% currently. In Budget 2017 and Budget 2018, the prime minister gave some allowance for the rate to be reduced for companies posting a profit level at certain taxable brackets,” Johari told reporters last week at an event to enhance cooperation between the Inland Revenue Board and the Royal Malaysian Customs Department.

Among the 10 Asean nations, Singapore has the lowest corporate tax rate at 17%. As for the rest, the rate ranges from 20% to 30%, according to data compiled by KPMG.

In comparison, several leading economies in the world impose a higher corporate tax rate than Malaysia’s, including the US, China, Japan, India, Australia, Canada, Brazil, Germany, France, Italy and Switzerland.

According to a 2016 report by the Organisation for Economic Co-operation and Development, the pace of corporate tax rate reductions has been gaining a renewed momentum among advanced economies, as governments around the world emerged from the aftermath of the financial crisis in 2008.

At home, a study commissioned by the Institute for Democracy and Economic Affairs, which was published in March, found that lowering personal and corporate tax rates to 15% would be a boon to Malaysia’s economy and could attract foreign capital.

Others, however, point out that corporate tax rate is not the main consideration for companies when seeking where to invest in. According to the World Economic Forum’s Global Competitiveness Report 2016-2017, the most important reasons are the quality of the country’s infrastructure, the availability of an educated, healthy workforce, and social stability.

It is also argued that increased profits as a result of lower corporate taxation mainly benefit the shareholders and owners of corporations, further increasing the gap between the rich and the poor. The International Monetary Fund, in a 2014 policy paper on “Fiscal Policy and Income Inequality”, also noted that indirect taxes such as value added tax and goods and services tax (GST) fall disproportionately on poor people.

Malaysia’s corporate tax rate was reduced to 24% in 2016 after the implementation of the GST in April 2015.

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