KUCHING: Benjamin Franklin once said, “In life, only two things are certain: Death and taxes.” His quote underlines the basic fact of life that no matter where one goes, taxes exist.
It is necessary for governments to tax its people and companies as part of its revenue stream in order to enhance the country.
In Malaysia, tax is imposed on income accruing in or derived from the country. It is assessed on a current year basis and is regulated by a self-assessment system for all corporate and individual taxpayers.
The Malaysian taxation system consists of both direct and indirect imposition of taxes, with direct tax consisting of income tax, real property gains tax, petroleum income tax and stamp duty. Meanwhile, indirect taxes comprise excise duty, import and export duties, sales tax and services tax.
Nevertheless, one does wonder: Is our tax system sufficient for meeting the demands of the country? On the other hand, is it attractive enough to put Malaysia on the global map when it comes to drawing foreign direct investments (FDIs)?
According to consultancy group UHY, Malaysia has one of the world’s most competitive and business friendly tax systems in the world today, given the global state of affairs.
In fact, a reduction in tax rates can spur Malaysia’s growth and competitiveness against local peers.
“In line with our national aspiration to become a high-income nation, competitiveness of the nation’s tax regime is crucial,” affirmed Alvin Tee, head of UHY Malaysia in a statement.
“Further reduction in tax would put Malaysia on the map as a haven for investors and international businesses.
“Even marginal reductions can make Malaysia more attractive.
“It would make sense to do this as it would complement the government’s drive to raise FDIs, attract new talent and encourage consumer and business spending and investment domestically,” Tee added.
Accounting firm KPMG Malaysia felt that the country’s tax incentives were very well suited to attract more investments into the country.
“The tax incentive regime in Malaysia is certainly amongst the most impressive in the region and based on this alone, there is plenty of motivation for investors to come here,” highlighted the group’s executive director, Tai Lai Kok to BizHive Weekly.
“There are, however, concerns in terms of labour supply and the increasing cost of local labour.
In view of this, Malaysia must continue to emphasise the growth of high technology and services sectors which, although less labour intensive, require a highly-educated and skilled workforce.” On the neutral side, RAM Rating Services Bhd (RAM Ratings) stayed on the fence when asked for their views on Malaysia’s tax situation, but cited positive breaks to boost the country.
“While Malaysia is neither a tax haven nor a low tax jurisdiction, it offers a wide range of tax incentives for the promotion of investments in selected industry sectors,” explains Foo Su Yin, acting chief executive officer of RAM Ratings.
“For companies which are eligible for these tax breaks, the effective tax rates may be significantly lower than the normal corporate tax rate of 25 per cent.
For instance, a manufacturing company with a pioneer status tax incentive, pays an effective tax rate of 7.5 per cent as only 30 per cent of its profits are subject to tax.
“Nonetheless, the use of tax incentives alone to lure FDIs is usually effective only in the short-run but may not be sustainable in the long-term,” she warned.
“More critically, fundamental factors such as political stability, healthy economic growth, low inflation, availability of skilled and unskilled labour, access to raw materials, strong technological capabilities and world-class infrastructure must come hand-in-hand with the tax incentives in order to ensure the continuity of investments from abroad into the country.” Foo noted that to counter this, several initiatives had been undertaken such as the liberalisation of foreign investments as well as announcement of the Economic Transformation Programme (ETP) and Government Transformation Programme (GTP).
“In 2010, Malaysia’s foreign direct investments were at RM29 billion, much higher than the RM5 billion in 2009, while investments for the first nine months of 2011 were 42 per cent higher compared to the previous corresponding period,” added Foo, indicating that this was a good sign of growth.
“Still, we are lagging behind countries like Singapore and Indonesia while Thailand and Vietnam are catching up fairly quickly in terms of FD.
“As such, we must persevere to further improve the business environments in the country with the immediate focus on ensuring that the ETP and GTP as well as other proposed policies are fully and efficiently implemented, addressing the shortage of skilled and talented human resources, and increasing transparency,” outlined Foo.