FEAR GRIPS MALAYSIA INVESTORS – WHERE ARE THE REFORMS? CRESCENDO OF CRITICISM FOR NAJIB’S DISAPPOINTING BUDGET ROLLS IN

BUDGET 2017 as expected addressed the fiscal deficit and has promised to reduce it to 3% in 2017 and will carry on to care for the needy sections of the rakyat through the BRIM payouts. The Prime Minister, in the budget speech, also acknowledged they are aware of the vulnerability to external factors such as the 50% drop in oil prices from its high point and the slowdown in many parts of the world especially Europe and China.

SME
The SME sector was given a boost through the reduction of corporate tax by 1% to 18 % for the chargeable income up to RM 500,000. This sector also continues to receive financial assistance and rebates and interest subsidies and insurance coverage.

Other corporates
The budget has proposed to reduce the corporate tax without compromising its revenues through a gradual reduction of 1% to 4% depending on the increase in taxable income in 2017 compared with the previous year, which will also be available in 2018. The overall effective tax rate for a company can go down from the current 24% to 20 %.

The tourism sector will benefit through the extension of the pioneer status and investment tax allowance incentive to December 2018 for new four- and five-star hotels.

BRIM
BRIM has been increased for households below RM3,000 to Rm1,200 from RM1,050 and RM1,000 and households with income between RM3,000 and RM4,000 from RM800 to RM900 and for single individuals earning less than RM2,000 from RM400 to RM500.

Individual tax reliefs
Individual tax reliefs have been extended with the introduction of three new reliefs.

The purchase of printed newspapers along with smartphones, tablets, internet subscriptions and gymnasium membership fees now qualify for a lifestyle tax relief of up to RM2,500 per year. Tax relief of RM1,000 for fees incurred for pre-school education and for the purchase of breast-feeding equipment is also provided.

Other tax measures
The stamp duty is increased from 3% to 4% for transfers of properties valued in excess of RM1 million. GST treatment on free trade zones and warehousing scheme is now streamlined.

In an effort to reduce the cost of ownership for first-time Malaysian home-buyers, the stamp duty exemption of 100% has been accorded to transfers of properties and loan agreements for such purchases of homes costing less than RM300,000.

This budget has proposed that there will be sharing of data between the 3 authorities: Inland Revenue Board, Royal Malaysian Customs and the Companies Commission of Malaysia. They will be able identify taxpayers who have registered for GST but not for income tax. This will also help them identify tax evaders etc. and will bring in significant revenues to the government.

Structural issues – what needs to be addressed?
BRIM certainly helps the poor and the needy but will this solve their problems in the long run. Cash handouts on a permanent or semi-permanent basis will not help them stand on their own feet. They need their fundamental issues addressed such as how to make a living in the long-term and become independent of government handouts. They will need capital, training and guidance to start small businesses.

M40 appears to be forgotten
The M40 group earning between RM3,900 and RM8,300 who face the rising cost of living without a commensurate increase in the earnings have not been given a helping hand. The expected widening of tax bands did not materialise. This group is also affected by rising cost of transportation and the need to meet various financial obligations such as having to service their car and housing loans and bear their health care costs. None of these issues were addressed.

Competiveness of corporate tax rates
The Malaysian corporate tax rates are among the highest in the region when compared with our neighbors such as Singapore 17%, Thailand 20%, Vietnam 20% and Indonesia (plans to go below 20%). An announcement of a gradual reduction over a time period would have sent the correct signals to foreign investors?

Overall the budget addressed some key issues but some remain unanswered.

THE SUNDAILY

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