Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily, on October 26, 2015.

 

Higher-taxes-for-top-earner_FD_26oct15_theedgemarketsKUALA LUMPUR: Raising the income tax rate on the affluent may trigger potential foreign investors to think twice about investing in the country in the future.

Taxand Malaysia Sdn Bhd chairman Dr Veerinderjeet Singh said the government’s move to increase the income tax rates from 25% to 26% for resident individuals earning between RM600,000 and RM1 million, and a 3% increase from 25% to 28% for both resident and non-resident individuals earning RM1 million and above, may create a long-term perception issue about the country.

The hike is effective for the year of assessment 2016 onwards.

“The move is surprising because it bucks the worldwide trend, which is towards reduction of tax rates, be it corporate or personal,” he told the audience during the 2016 Post-Budget Dialogue on Saturday. Veerinderjeet was one of the panelists.

“It sends a very clear message to potential foreign investors that changes may occur in the future, even for corporate tax rates. We need to be very careful because the issue is that we are competing with other countries in the region,” he added.

Veerinderjeet cited Singapore, which is considering increasing its income tax rates for top income earners there, noting that the country has a developed economy and is a financial centre with different dynamics compared with Malaysia.

“We are a developing nation and I wouldn’t call ourselves a welfare state. When you become a developed nation, the concept of providing welfare to all your citizens becomes important,” he told reporters after the dialogue.

He explained that while some countries around the world are moving towards increasing the income tax rates for the super-rich, they are doing so because they need more revenue to sustain the economy of a welfare state.

Veerinderjeet reckoned that the latest increase in income tax rates will impact multinational companies (MNCs) that have high-income senior executives posted to Malaysia.

“Most MNCs bear the income taxes for their senior [foreign] executives although tax is just one the many criteria used by MNCs [to attract foreign employees to expatriate assignment],” he added.

Meanwhile, Veerinderjeet hoped that the move to increase income taxes on the affluent was a temporary one, and that the taxes would be reverted to the orginal rate of 25% in the near future to ensure the country’s competitiveness.

Rather, he suggested that the government withdraw incentives given to certain sectors that have reached maturity and no longer need them and cut corporate income taxes.

“My own philosophy is for a low corporate tax rate, at 20% or even lower at 18%, which is a very effective rate. If we can do that, then we should do away with the incentives.

“Do we need to give incentives to certain sectors, which are considered to have already reached maturity? Maybe [the government] could give it for five or 10 years, then that is it.

“The companies should be able to survive and if they don’t, then the companies should find other ways of operating. That is what I meant by slowly withdrawing [the incentives],” Veerinderjeet said.

Ministry of Finance secretary-general of treasury Tan Sri Dr Mohd Irwan Serigar Abdullah said Budget 2016 should not be considered as a “Robin Hood” budget, as the amount that the government will be collecting from the income tax of high-income earners will be about RM400 million, and not in the billions.

Mohd Irwan added that some countries tax their rich citizens up to between 40% and 60%.

“The number of those in the RM600,000 to RM1 million tax bracket is about 12,000 people, while the RM1 million and above bracket is roughly 5,000 plus. It is a small figure compared with the total number of taxpayers,” Irwan told reporters after the dialogue.

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