Malaysia To Continue Cutting Corporate Tax

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

18 July 2007

A one percentage point reduction in Malaysia's rate of corporate tax will go ahead as planned next year, Second Finance Minister Nor Mohamed Yakcop revealed on Tuesday.

The reduction is part of a rolling programme of corporate tax cuts announced last year by Prime Minister Abdullah Ahmad Badawi, which has seen the rate fall by 1% to 27% this year, and will bring about an additional cut to 26% in 2008.

"Although this measure will result in a significant reduction in revenue, the government is confident that it will have a positive overall effect on the economy," the Prime Minister stated in the 2006 budget.

Until this year's cut, Malaysia's corporate tax rate had remained static at 28% since 1998, as the government placed a higher priority on balancing its books.

Although it is Asia's third largest economy, Malaysia's corporate tax rate compares unfavourably to other economic powers in the region, particularly Singapore and Hong Kong, and the tax cut goes some way towards addressing this.

Last year, Abdullah also announced a number of other tax breaks designed to encourage investment in the private sector. These include incentives to promote growth in tourism, biotechnology, Islamic banking and real estate investment trusts (REITs). Islamic banks conducting business in foreign currencies were also to be granted a ten-year tax holiday.

The government is however, coy on the subject of personal income tax, which stands at 28%, and has refused to say whether there will be cuts in income tax to match the corporate tax cuts when the next budget is announced in September. “Continued studies are being done to look into the matter," Nor Mohamed explained. Only a small proportion of Malaysians who are in the tax system pay income taxes.

Nor Mohamed was speaking as he announced the government's revenue collection figures for the year, which he said may exceed the government's RM69 billion (US$20 billion) target. By July 16, the Inland Revenue Board (IRB) had collected RM41.15 billion since January 1, 2007, he told reporters after delivering a keynote address at National Tax Conference 2007 in Kuala Lumpur.

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