ASEAN KEY DESTINATIONS
Tax decreases in Malaysia?
Malaysia should consider lowering both the corporate and personal income tax rates to enhance Malaysia's attractiveness and competitiveness, according to tax consultants.
PricewaterhouseCoopers Taxation Services Sdn Bhd (PwC) tax leader and senior executive director Khoo Chuan Keat said the corporate tax rate could be "reduced gradually over the next few years to 20 percent".
As for personal tax bracket, Khoo said it should be aligned to that of corporate tax and the income tax rates should also be widened considerably to be more competitive.
"As the reduction of income tax rates will inevitably reduce revenue collection by the Government, alternative sources of revenue have to be derived. One obvious alternative is to broaden the tax base by boldly implementing the long debated Goods and Services Tax (GST)," he said.
Khoo said lowering corporate and personal income tax rates would effectively increase shareholder value of corporates and disposable income of individuals.
The tax savings generated, if channeled to business expansion and additional capital investments, would help to spur and stimulate economic growth.
"A lower corporate tax rate which contributes to a lower cost of doing business could also help attract foreign direct investments into our country. As the country continues to engage in the war for talent, a more attractive personal income tax rate would be one of the factors that could help attract foreign talent and retain local talent," he said.
Meanwhile, KPMG Malaysia executive director, head of tax Khoo Chin Guan said there was an increasing trend globally for governments to reduce income tax rates, and to compensate for the resultant shortfall in tax collection, some governments had introduced new consumption tax namely Value Added Tax (VAT).
"In the immediate future, Malaysia will have to follow suit in order to remain competitive in the eyes of the global business community," Chin Guan said.
He said tax remained an important factor in the evaluation process for investors particularly in these challenging economic times when identifying location for their investments although it might not necessarily be the only criterion.
However, he said he would be "pleasantly surprised" if there was a proposal to reduce the tax rates in the upcoming Budget 2012 without a corresponding announcement on the date of implementation of GST and its proposed rate considering the Government's intention to reduce its budget deficit to below 5.4 percent of gross domestic products in subsequent years.
Malaysia's current corporate tax of 25 percent is in the middle range compared with countries in the region. Hong Kong's corporate tax stood at 16.5 percent, Singapore (17 percent), while Thailand, the Philippines, Australia and New Zealand are at 30 percent.
"Even though our corporate tax rate has been reduced over the years (from 30 percent in 1995 to 25 percent in 2009), the rate of reduction is not as significant as the other countries in the region. For example, Malaysia used to rank favourably in 1995, but in 2010, countries such as China and Indonesia have caught up. Additionally, countries such as Singapore and Taiwan have dropped their tax rates to as low as 17 percent," Chuan Keat said.
He added that at the first glance, Malaysia was neither most competitive nor the least competitive in the region. "Malaysia is on par with countries such as Vietnam, China and Indonesia (at 25 percent)."
On personal income tax, PwC's Khoo said Malaysia's top personal tax rate of 26 percent was considered mid-range in the region.
However, due to the tightness of the tax brackets where the top rate of 26 percent is reached at a relatively low level of income, Malaysia could appear to be less competitive in comparison with some countries, including China.
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