This article first appeared in The Edge Financial Daily on October 3, 2017

KUALA LUMPUR: Budget 2018, which is set to be tabled on Oct 27, is not expected to deliver any significant hikes — or cuts for that matter — in tax rates.

Deloitte Malaysia country tax leader Yee Wing Peng said tax cuts are not expected as the country is still grasping with low oil prices and the slowdown in global economic growth.

“With our budget deficit running [at] 19 years in a [row] since 1998, and with an aim to attain the targeted budget deficit of 3% of gross domestic product in 2017 and a balanced budget by 2020, there is limited room for the government to lower tax rates.

“On the other hand, as we are still trying to manage the adverse effect of the goods and services tax (GST) implementation on businesses, following the impact on the purchasing power of consumers generally, I believe the government will still come out with some measures to create a more facilitative business environment and increase the purchasing power of the rakyat to the extent possible,” he told The Edge Financial Daily.

Crowe Horwath KL Tax Sdn Bhd managing director and Malaysian Tax Research Foundation trustee SM Thanneermalai said personal tax rate reduction is unlikely, though he thinks there should be some incentives given to the middle-income group, given that the cost of living has risen.

“There may be some changes to the tax bands, in such a way that these tax bands are expanded so that this group (the middle-income) pays less tax on their initial income [earned],” he added.

Yee thinks despite challenging fiscal conditions, there will be some small goodies to help the rakyat deal with rising costs.

“For example, incremental personal relief — [increasing child relief from RM2,000 at present to RM5,000 for children below 18 years old, increasing [the limit of] EPF contribution from RM6,000 to RM8,000 and [the] private retirement scheme (PRS) from RM3,000 to RM5,000 to encourage savings,” he said.

For corporate tax rates, which are currently at 24% and 19% for small and medium enterprises (SMEs), Axcelasia Inc executive chairman Dr Veerinderjeet Singh said he does not expect a drop in the rates either.

“With corporate tax rates, it’s really about how we see the compliance levels in the country, and how we see [tax] revenue being generated. If we find that revenue is increasing and GST is earning a lot more, then there is scope to reduce some corporate tax rates.

“But I don’t see a reduction coming forth. If there is any, it is only when the government is comfortable with the [level] of revenue being collected. In 2020, we are hoping to reach a 20% corporate tax rate, so there may be a need to have a progressive announcement to reduce the tax rate by 1% per year, but [whether the] government is able to do that, is a question mark at this stage,” he said.

Yee noted that last year the government reduced corporate tax for non-SMEs’ from 24% to a range of between 20% and 24%, depending on their respective percentage increases in year-on-year chargeable income.

“However, from my observation, not many companies are able to enjoy this due to less than thriving economic conditions, which resulted in profitability of business declining compared with the preceding year.

“It would be good if the government can remove the conditions and bring down the prevailing corporate tax rate of 24% to 22% across the board,” he said.

On incentives, Yee said the government may extend incentives to the tourism and healthcare sectors.

“Currently, hotel buildings that are rated four and five stars are given [an] investment tax allowance (ITA) of 60%, which is a form of additional tax deduction on capital expenditure, or income tax exemption of 70%.

“However, this incentive will expire on Dec 31, 2018. Similarly, building and medical facilities for private healthcare are given [a] 100% ITA of five years up to Dec 31, 2017. In this respect, I believe the government may come out with a proposal to extend such incentives,” he said.

Meanwhile, Thanneermalai said the digital economy is expected to be an area of interest tax-wise for this year’s Budget 2018.

“The digital economy, especially foreign companies earning money in Malaysia, is likely to be subject to tax via an indirect tax [such as the] GST or perhaps withholding tax mechanisms.

“There could also be some form of levy being introduced on certain services provided by these [foreign] companies, for example companies which advertise on Malaysian websites,” he said.