This article first appeared in The Edge Financial Daily on October 8, 2019

KUALA LUMPUR: With the run-up to Budget 2020, Ernst & Young Tax Consultants Sdn Bhd (EY) has urged the government to consider broadening and reducing the number of income tax bands.

Broader income tax bands, EY said, would encourage individuals to improve their earning capability through increased productivity and self-development as they would be able to enjoy the fruits of their labour, thereby improving Malaysia’s efforts to become a high-income nation.

“The additional take-home income would also allow for an increase in consumption of goods and services, some of which are subject to the sales and service tax (SST),” EY said in a statement yesterday.

On the SST, EY said that aside from the many legislative updates that need to be tracked, there is ambiguity surrounding certain categories of taxable services such as consultancy, management and information technology services, and even the coverage of digital services.

“Tax-on-tax scenarios drive up costs of doing business,” it said, suggesting that the government set up an advisory panel of industry experts for consultation with the Customs Department on SST matters.

EY also suggested the reintroduction of an input tax mechanism or a credit system into the service tax regime to counter the effects of tax-on-tax.

Overall, EY expects the government to provide a tax framework that will continue to provide a simplified and enhanced tax administration that is progressive and equitable. It said that the government should focus on measures to support growth of businesses by enhancing the current tax administration system with greater clarity, consistency and transparency.

“We look forward to well-formulated and sustainable pro-growth tax reforms, in addition to improvements in the tax administration, particularly in terms of clarity, consistency and transparency,” it said.

In terms of attracting foreign direct investment, EY said the government should identify specific priority sectors for future development and the types and sources of investment it intends to attract.

This is especially so as Malaysia is currently competing with countries such as Thailand and Indonesia which are already introducing competitive tax packages, rates and benefits to foreign investors seeking to relocate their production facilities.

To address the issue of housing affordability, EY suggested the government to introduce some measures targeting the young middle 40% income group to provide further traction to the housing market.

These measures include extending the period of stamp duty exemption for the purchase of a residential property under the National Home Ownership Campaign without a cap on property prices, reintroducing personal relief on housing loan interest for a period of three consecutive years to encourage the younger generation to own a home in Malaysia, and providing double tax deduction on housing loan interest subsidised by employers to encourage private-sector participation and increase property demand.

“Besides the fiscal stimulus, the government should also consider market intervention in the unprecedented issue of oversupply and overpricing of residential properties,” it added.