Malaysian Government Beseiged By Tax Cut Requests

by Caroline Maxwell, Tax-News.com, London

19 October 2001

As it prepares its 2002 budget, the Malaysian government has been beseiged by requests, proposals, and petitions for tax cuts and incentives, with industry, the property sector, and investors all becoming increasingly jumpy about the implications for Malaysia of the terrorist attacks in America and the subsequent global economic slowdown.

Quah Poh Keat, vice-president of the Malaysian Institute of Taxation and senior KPMG partner insists that corporate tax cuts must be first on the agenda, in order to ensure that the country remains competitive in the current economic climate.

'We have to do what is right and this calls for the government to take some drastic and bold steps to bring the corporate tax from 28% down to 25% or 24.5%,' he explained. 'Our neighbour Singapore has a rate of 24.5% and it has also introduced tax rebates on top of that. Many countries have been making corporate tax reductions in recent years to stay competitive.' Mr Quah stressed that a move on corporate tax was long overdue, as the last revision was over four years ago and circumstances had changed dramatically since then.

Meanwhile, investment groups have been clamouring for measures to encourage investment in unit trust funds. Currently, a sum of RM5,000 is tax deductible from life insurance premium payouts and EPF contributions, but the government has been urged to consider additional tax incentives, such as CGT exemption on dividend payouts, and income tax exemption for the first RM5,000 invested.

And last, but by no means least, the Malaysian property sector recently announced proposals for the reduction of Real Property Gains Taxes (RPGT) on the disposal of properties, and relaxation of Foreign Investment Committee guidelines in order to encourage investment in the sector.

Tax Advisory and Management Services executive director Yong Poh Chye said that the industry was hoping for a reduction in the tiers of RPGT rates from 15-30% to 10-20% for Malaysian citizens and permanent residents, and for a similar reduction in the rates for foreign citizens and non-permanent residents. He supported Mr Quah's calls for a lower corporate tax rate, and suggested that an additional 2% cut in personal income tax would help to improve the well-being of Malaysian citizens.

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