Budget 2020 Q&A: How Effective Were The Taxes Introduced Last Year?
Budget 2020 is just a few days away (Oct 11) and we are looking forward to its tabling by Finance Minister YB Lim Guan Eng.
There have been a lot of talk about taxes lately with the prime minister stating that new taxes may need to be introduced and even talk about the Goods and Services Tax (GST) resurfacing.
In anticipation of the new budget, we reached out to experts to recap Budget 2019. This second installment of our pre-Budget 2020 roundup is about a subject matter that is in the minds of many.
What taxes did we see in Budget 2019?
- Special Voluntary Disclosure Programme for taxpayers to declare unreported income under reduced penalty rates.
- Increased taxes, fees, and levy on the gambling industry.
- Real Property Gains Tax rates to be increased from 5% to 10% for companies and foreigners, 0% to 5% for Malaysian individuals (except housing below RM200, 000).
- Service tax for imported services.
- Stamp duty on transfer of property more than RM1million in value will increase from 3% to 4%.
We interviewed Fung Mei Lin, Partner at PwC Taxation Services Malaysia for a clearer picture of tax measures adopted in Budget 2019.
“More could have been done to stimulate domestic direct investments to complement initiatives such as advancing towards Industry 4.0 and upskilling the local labour market”.
– Fung Mei Lin
Q1: How effective were the tax measures implemented in Budget 2019?
Using tax-related measures alone may not be enough to restore Malaysia to its glory. However, to some extent, these measures are effective in earning revenue for the Government.
(a) Special Voluntary Disclosure Programme (SVDP) for taxpayers to declare unreported income under reduced penalty rates.
The SVDP was introduced to encourage taxpayers to voluntarily come forward and disclose their undeclared income amidst the introduction of the Automatic Exchange of Information (AEOI) for our tax authorities to access information for tax audit and investigation from foreign tax authorities.
Whilst the IRB has yet to announce the amount of direct taxes collected through this programme, it is estimated that more than 500,000 taxpayers have come forward to take advantage of the SVDP. This programme has driven a greater compliance mindset amongst taxpayers.
(b) Real Property Gains Tax rates to be increased from 5% to 10% for companies and foreigners, 0% to 5% for Malaysian individuals (except housing below RM200,000).
(c) Stamp duty on transfer of property worth more than RM1million in value will increase from 3% to 4%.
Most businesses would have hoped for a reduction in property taxes and stamp duty rates, and not an increase to spur property-related activities. The Government on balance have introduced RPGT exemption for residential properties below RM200,000, a two-year stamp duty exemption for houses priced up to RM500,000 on the first RM300,000, and stamp duty exemption for first-time house buyers on properties priced below RM300,000.
These measures are consistent with the Government’s aim to support the lower-income group. The Government is working with private businesses; for example, introducing the Home Ownership Campaign to assist in increasing homeownership by giving stamp duty exemption to buyers.
It is reported that the Home Ownership Campaign (HOC) is likely to generate RM17 billion in sales by the end of 2019, derived from sales of about 25,000 units of houses by year-end. I hope that this momentum will continue with more targeted measures to be adopted in Budget 2020 to address the affordable housing issue.
(d) Service tax on imported services
SST as a whole is expected to collect about half of what the GST has managed to collect notwithstanding the introduction of service tax on imported services with effect from 1 January 2019. From a practical perspective, defining taxable services remain a challenge. Hence the implementation and results from this initiative are perhaps still premature at this point in time.
In terms of outflows, the Government has exercised prudence to ensure that the nation’s coffers are able to refund relevant taxes to taxpayers. As an example, tax refunds are carefully reviewed before they are refunded to taxpayers.
Q2: YB Lim Guan Eng said in his speech during the tabling of Budget 2019 that,
“As long as we are clean, people-centric and focused on carrying out institutional reforms, we can restore Malaysia back to its fiscal health in three years”.
Do you think we are on track?
Based on the initiatives so far, I believe that we are moving in the right direction in realising the government’s plans for the nation.
Whilst the Government can take measures to spur the economy and drive entrepreneurship through initiatives such as Industry 4.0, the private sector must play its part in taking up the challenge to move and upskill itself.
Changing mindsets and practices particularly in moving towards adopting industry 4.0 have been slow to take off as businesses contemplate the cost of investment and potential disruption.
More could have been done to stimulate domestic direct investments to complement initiatives such as advancing towards Industry 4.0 and upskilling the local labour market.
Q3: The 3 main focus areas of Budget 2019 were:
-To implement institutional reforms
-To ensure the socio-economic well-being of Malaysians
-To foster an entrepreneurial state
How well do you think these 3 focus areas cover the needs of the rakyat from B40, M40, and T20?
I must say that Budget 2019 has adopted broad-ranging measures to cover the various needs of the Rakyat, particularly the B40 and M40 categories.
From the perspective of the B40, the second focus area (ensuring the socio-economic wellbeing of Malaysians) had a more direct effect on the third focus area (fostering an entrepreneurial state), affecting mainly small and medium enterprise business owners.
The challenge for the M40 is sustaining their real disposable income and maintaining their current lifestyle against the living cost increase and an uncertain global economic environment.
The increase in minimum wage and subsidies under Bantuan Sara Hidup as well as the monthly transportation pass among other initiatives have definitely put more Ringgit into the Rakyat’s pockets.
In terms of the broader economy, Budget 2019 introduced several measures to encourage a “dynamic economy.” But with ever-changing global trade trends and considerable downside risks in 2020, the question is whether Budget 2020 will see the commendable initiatives introduced in Budget 2019 through.
These include Industry 4.0 initiatives, incentives for green technology practices and attracting selected high-value foreign investors to Malaysia to enable technology transfer to the locals.