December 26, 2019
So what are some of the tax measures that we can expect in Budget 2020 that will help drive this goal?
Finance Minister Lim Guan Eng has indicated that the government is unlikely to announce new taxes such as an inheritance tax in Budget 2020.
New and more radical taxes such as sugar tax, digital tax (in the form of a service tax) and gaming tax had already been introduced in Budget 2019.
Over the years, Malaysia has seen a gradual reduction in corporate income tax rate from 40% (following the enactment of the Income Tax Act in 1967) to the present rate of 24%.
In Budget 2019, the government reduced the corporate income tax rate for small and medium enterprises (SMEs – as defined for tax purposes) by one percentage point from 18% to 17% on the first RM500,000 of chargeable income.
With some neighbouring countries having lower corporate income tax rates (see Table 1), the government may consider reducing the corporate income tax rate in Budget 2020 to ensure Malaysia remains competitive as a foreign direct investment destination in Asean.
Sales and Service Tax (SST)
With a possible reduction in direct taxes (corporate income tax) and to protect government tax revenue, the government may shift its attention to the collection of indirect taxes such as Sales and Service Tax (SST) and Customs Duty.
While an increase in the current SST rate is unlikely, the widening of the scope of taxable goods and services under the SST regime may be forthcoming.
We may also see an extension of certain tax incentives which expired or are expiring in the years of assessment 2018 and 2019, or those expiring on Dec 31 2019.
These may include the special reinvestment allowance incentive introduced in Budget 2016, which extended the period of reinvestment allowance claim up to the year of assessment 2018, the application period for the venture capital tax incentive and tax incentives for Industry4wrd as well as the tax incentive period for listed Real Estate Investment Trusts (REITs).
With the evolution of non-traditional business models (eg fintech, e-wallet etc), the government may consider introducing more customised or tailored incentives for these businesses. There is room for discussion in this area as the incentives introduced over the past 10 to 20 years may not suit these evolving business models.
Real Property Gains Tax (RPGT)
In Budget 2019, the government increased the real property gains tax (RPGT) rate for the disposal of property in the sixth year and subsequent years, from 5% to 10% for companies as well as non-citizens and non-permanent resident individuals; and from 0% to 5% for others.
This increase in the RPGT rate has not been positively received by genuine home owners whose intention is not to make a gain from capital appreciation, but instead to upsize or downsize their homes to best suit their needs, for example to finance children’s education or due to retirement plans.
Following feedback to the government, it is hoped that Budget 2020 will address this concern, perhaps through the introduction of a new category of RPGT where any disposal of property in the 10th year and subsequent years will be not be subject to RPGT.
Green technologyGiven the recent spate of environmental issues affecting Malaysia and other neighbouring countries, the government may consider introducing tax-friendly policies to foster green technologies and energy-efficiency.
Some incentives the government may consider include tax exemption for income from carbon/emissions trading of Certified Emission Reductions (CER); capital allowances relating to environmental protection equipment; and tax breaks for activities relating to energy conservation, energy renewal and environment conservation.
Bernard Yap is a Tax Partner in Ernst & Young Tax Consultants Sdn Bhd. The views reflected above are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.