KPMG predicts measures to reduce M40 group’s tax burden

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KUCHING: KPMG Tax Services Sdn Bhd believes the coming Budget 2017 will have more measures to aid those in the middle income group (M40), taking cognisance that this segment is in a precarious position financially.

Executive director Regina Lau in an exclusive interview with The Borneo Post believed that woes related to affordable housing remain a permanent fixture as do rising costs of living. While the low income or B40 group is hard hit, the middle income group is also not spared from this.

“Their income is not high enough to maintain a reasonable standard of living but not low enough to qualify for government aid such as the Bantuan Rakyat 1Malaysia (BR1M),” she explained, adding that this group forms the biggest group of individual taxpayers.

“In 2015, a special tax relief of RM2,000 was given to individuals earning up to RM8,000 per month.

“Extending this relief to 2016 and beyond, increasing the quantum and qualifying income threshold will help to reduce the group’s tax burden,” she opined. “Other reliefs such as that on medical expenses, medical insurance and segregation of the EMployees’ Provident Fund (EPF) and life insurance are overdue for review.

“In addition, with the Goods and Services Tax (GST) now in full swing, a serious reduction in tax rates is due. The last budget increased the rates for the higher income bands but did nothing for the rest.”

As to whether the government can afford to give more tax breaks, Lau believed the government faces challenges in balancing its revenue collection with its expenditure and socio economic needs.

“Balancing the scales to maintain a reasonable budget deficit requires fiscal prudence,” she affirmed.

“Spending needs to be directed into sustainable productive investments which will pay dividends in future as against spending on short term solutions which give no future benefits.

“Excesses must be also curbed. For example, the Saudi Arabian Government, hard hit with falling oil revenues, recently made an unprecedented move to curb, reduce and suspend wage increases for its cabinet ministers and public sector employees to save money and reduce its budget deficit.

“This may not be the best or wisest solution but it certainly is an example that painful moves are sometimes required.

Operating expenditure should be trimmed and channeled towards development expenditure.” Meanwhile, small and medium enterprises (SMEs) play a significant role in the country’s economy and innovation is key to domestic growth, global markets access and competitiveness.

Lau called for targeted incentives for this sector to help drive down costs of restructuring for domestic growth and global competitiveness and improving productivity will have significant positive domino effects on the economy.

“While various incentives on innovations are currently available to SMEs, they may not be so effective or relevant,” she explained.

“For instance, double deductions for research and development expenses are not easy to qualify for.

“Enhanced capital-based incentives, grants or financing support packages will help SMEs in their quest to invest in high capital automation to increase productivity.

Productivity provides the means for wage increases and business prosperity provides the revenue collectors with higher tax collections.

“Certain expenses for standards certification by approved bodies currently qualify for double deduction.

A review of the qualifying expenses and extending the list of standards and approved bodies will help alleviate some costs of businesses upgrading and expanding into competitive international markets.” On another aspect, Lau said the main government revenue collection agencies namely the Inland Revenue Board and Customs have been aggressive in their enforcement activities this year in a bid to increase tax collections.

It is essential that in such pursuits, taxpayers are not unduly burdened with high compliance costs.

It is likely that current steps to encourage voluntary disclosure to boost income tax collections may continue into the coming year and enhanced tax amnesty programmes introduced.

“The government has assured that there will not be a hike in the GST rate in the budget.

While that would be a relief, 18 months into the GST era, most businesses find GST compliance more onerous than income tax compliance and the compliance costs high.

The GST legislation appears to be unnecessarily complex with many regulations, exemptions and reliefs.

“While the country aspires to move up the World Bank rankings for ease of doing business and has eliminated much bureaucracies including improving income tax compliance processes and recently revamping the entire Companies Act, a review of complex GST compliance such as capital goods adjustment and partial exemption that are required of certain business sectors should be considered.

“In addition, it is essential that GST input tax credits are refunded promptly to alleviate cashflow stress on businesses.

GST audits on the claims can follow later but should not be a reason to hold up the refunds.

“There may be hits and misses in the coming budget but we look forward to seeing priority areas being addressed with appropriate budget allocations and measures to check on proper execution of the programmes and utilization of such allocations.”