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Friday, November 1, 2013

Cutting income tax ahead of GST ‘too bold’, tax firm says

OCTOBER 28, 2013

Workers clean windows at a commercial building in Kuala Lumpur
on March 25, 2011.Sales, purchases and rentals of residential properties,
as well as selected financial services, are also exempted from the GST. — AFP pic
KUALA LUMPUR, Oct 28 — Slashing income tax rates one year before implementing the new Goods and Services Tax (GST) system in 2015 is “too bold” a move by Putrajaya, tax advisory firm Taxand Malaysia has said, reminding the government that revenue collection from these latest measures was still uncertain. 

The firm said that the new consumption tax - which will be introduced in April 2015 at a rate of 6 per cent to help Putrajaya control its fiscal deficit - should be implemented for two or three years and allowed to adjust first, before personal and corporate income tax rates could be reduced to offset the new tax burden on consumers.

“You’re not sure how the GST will work out. You’re not sure of your revenue. And already, you’re cutting your taxes,” Taxand Malaysia chairman Dr Veerinderjeet Singh told The Malay Mail Online recently.

“That’s too bold. Overly optimistic. You allow two to three years for it to work out to settle down, then you start to talk about reducing rates,” he added.

Prime Minister Datuk Seri Najib Razak announced during the tabling of Budget 2014 on Friday, that personal income tax rates will be reduced by 1 to 3 percentage points in 2015; while in 2016, the corporate income tax rate will be reduced from 25 per cent to 24 per cent, and the income tax rate for small and medium companies will be cut from 20 per cent to 19 per cent.

Najib also said that taxpayers will no longer be required to submit their tax returns, effective 2014, if they are satisfied that their monthly tax deduction by their employer is the final tax. 

Veerinderjeet called the move a “progressive” step as it would cut down the Inland Revenue Board’s (IRB) processing time. 

“There will be initial reluctance by employers. But I personally do not think they need to hire more people. This can be done based on existing staff,” he said.

“No extra work because deductions are all done by the employer. The Inland Revenue Board has a table of deduction. What they’re going to do is improve that further and make that more accurate. So, the employer just follows,” he added.

Chartered Tax Institute of Malaysia (CTIM) president Thanneermalai SP SM Somasundaram said that the GST, which will replace the current Sales and Services Tax, will provide Putrajaya a more reliable source of revenue than income tax, as the former is based on consumption. 

“Businesses will try to manipulate and increase their prices. Consumers, if they understand how the system works properly, will ensure there’ll be pressure put on such businesses not to increase prices,” Thanneermalai told The Malay Mail Online today.

“But 6 per cent is the right rate of tax. Once you introduce 6 per cent, you don’t have to increase the tax for many years to come,” added the tax expert.

Like Veerinderjeet, Thanneermalai agreed that employers would not be burdened much with the change to the filing of their employees’ tax returns.

“The satisfaction (to employees) - it’ll completely outweigh the extra work,” said Thanneermalai.

“This is not going to add a huge burden to employers. Maybe a little bit of hiccups for a few months. Certain adjustments can be made...I don’t think the Inland Revenue Board will impose penalties on those who make mistakes,” he added.

Thanneermalai also stressed that the move would remove a few hundred thousand taxpayers from the system and free up the IRB to focus on tax evasion.

“We as tax practitioners don’t see any difficulty,” he said.

Najib said that the GST will not be imposed on essential food items like rice, sugar, salt, and cooking oil; piped water supply; government services like the issuance of passports, licenses, healthcare services and school education; or transportation services like buses, trains, LRTs, ferries, boats, and highway tolls.

Sales, purchases and rentals of residential properties, as well as selected financial services, are also exempted from the GST.

The prime minister pointed out that Malaysia’s GST rate of 6 per cent is among the lowest in Asean countries, noting that the GST is fixed at 7 per cent in Singapore and Thailand.

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