8th Malaysia Plan Heralds Major Tax Reform Programme

by Mary Swire, Tax-news.com, Hong Kong

25 April 2001

Malaysia is set for a massive tax reform programme, entitled the Eighth Malaysia Plan (8MP), which was presented to the country's parliament this week by Prime Minister Datuk Seri Dr Mahathir Mohamad, who said changes to the country's tax regime were 'in line with the Government's efforts to reduce dependence on direct taxes and broaden the revenue base'.

The 8MP centres upon reducing corporate and individual income taxes - aimed at attracting foreign investment and encouraging business - balanced against an increase in consumption taxes, namely sales and service taxes. Indeed, sales and service taxes are projected to grow by annual average rates of 24.2 and 17.5 per cent respectively in the duration of the 8MP, which spans the 2001-2005 period.

Under the 8MP, income tax drops from 30 per cent to 29 per cent and corporate tax from 30 per cent to 28 per cent. The Government has meanwhile increased the minimum taxable income to RM2,301 per month under Budget 2001, from RM951 per month in 1995. In addition, persoanl tax exemption is raised to RM8,000 from RM5,000. As for sales tax, the rate varies by product, ranging from 5 to 15 per cent, but no tax is imposed on essential goods, agricultural produce and raw materials.

SungeiWay Group corporate adviser Tan Sri Ramon Navaratnam said in the Malaysian press that a low corporate tax regime would be an incentive for local businesses to expand their operations or branch into new activities. He was quoted as saying: 'If the corporate tax is reduced to 25 per cent, less than Hong Kong and Singapore, for example ... we can draw more foreign investments.' He added that the move towards a more consumption-based taxation regime would make the system more efficient and fair, and that the government would ultimately bring in more revenues as there would be less opportunities for tax evasion.

President of the American-Malaysian Chamber of Commerce (Amcham), Nicholas Zeffreys, also welcomed the provisions of the 8MP, saying: 'Any kind of tax reduction, particularly during an economic slowdown or the downside of an economic cycle, is a smart move. Private enterprises are the engine of growth and tax relief will definitely help them.'

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