KUALA LUMPUR: Malaysia’s plan to reduce corporate tax from 25 per cent at present would be a shot in the arm for companies and is likely to attract more domestic and foreign investors, an economist said.
Investors will see Malaysia as a place where they can generate more revenue, Institute for Democracy and Economic Affairs chief executive officer Wan Saiful Wan Jan said.
“It is also good for common people because it means capital is freed up to enable companies to create more jobs,” he told Bernama in an interview.
Citing the UK as an example, Wan Saiful said as taxes were pushed down to the optimum level, the government revenues could potentially increase.
“The UK reduced their corporate tax in stages from 24 per cent in 2013 to 20 per cent this year. However, the actual cash collected by the government went up because of the growth in foreign and domestic investments,” he said.
MIDF research head Zulkifli Hamzah said a low corporate tax regime would also be an incentive for foreign companies which had exhausted their tax incentive concessions to continue to operate in Malaysia.
Furthermore, corporate and individual income tax reduction has always been part of the Goods and Services Tax (GST) plan as Malaysia moves towards consumption-based taxation, he said.
He brushed aside a suggestion that the move would solely be a Foreign Direct Investment (FDI) strategy, saying that Malaysia already has competitive FDI incentives.
“Malaysia even accord a customised incentive package to foreign investors. A lower corporate tax is expected to entice more foreign portfolio investments as opposed to FDI,” he said.
Wan Saiful also believes that a lower corporate tax and flourishing economy would help retain talents at home.
“Singapore’s lower tax makes them more attractive to investors and the booming economy has attracted many talented Malaysians,” he said, adding that a swift action is needed before Malaysia lose out to neighbouring countries, such as Indonesia.
However, Alliance Bank Malaysia Bhd chief economist Manokaran Mottain argued that each country tax structure was different, depending on the nature of the economy.
“For instance, almost a third of Malaysia’s revenue comes from the oil and gas sector, whereas Singapore’s and Indonesia’s respective budget would not command such a large proportion,” he said.
Therefore, the ideal situation is for private sector and household income to grow in tandem – a more effective way to increase government’s tax revenue from increased spending rather than to increase taxes and squeeze the economy.
In 2014, corporate tax collection in Malaysia amounted to RM126 billion or 30 per cent of the total tax revenue.
“Given the current fiscal exercise to achieve a balanced budget by 2020, we do not expect the government to initiate any massive rate cut in the short-term at least,” Manokaran said.
