KUALA LUMPUR: Malaysia cannot afford a cut in corporate tax unless its tax base is broadened and the country maintains a stronger than average growth trajectory, finance minister Tengku Zafrul Aziz said.
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In an interview with Singapore’s The Straits Times, he said the corporate tax rate, currently at 24%, could not be reduced because of the narrow tax base.
“If you look at the corporate income tax, it does represent a big chunk of the federal government’s revenue of approximately 32.8%, including petroleum income tax, given the widening fiscal deficit, which is expected to be around 6.5% this year due to the pandemic.
“Malaysia, I believe, is not in a position at this stage to afford a tax rate cut as one of the problems has been our narrow tax base. Until we can broaden our tax base and maintain a stronger than average growth trajectory, (we cannot) consider a cut in corporate tax rate.
However, Tengku Zafrul said, given the global trend favouring lower corporate tax, Malaysia may need at some point to review its corporate tax structure to realign with the broader economic growth in the medium term.
He was asked if Malaysia would consider cutting its corporate tax to 15% over the next three to five years.
Malaysia’s corporate tax is among the highest among the Asean members, with Singapore the lowest at 17%, Vietnam, Thailand and Cambodia at 20% and Indonesia at 22%.
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“Having said that, lower corporate tax is not the only component to attract foreign direct investments (FDIs). There are other key factors such as good infrastructure, human resources and clear regulations,” he said.
In a pre-budget statement released on Aug 31, the finance ministry said the government was considering measures to increase tax revenue through increased tax compliance as well as address the issue of revenue leakages, especially the smuggling of high-duty goods estimated at RM5 billion per annum.
It said that among the recommendations being considered was the implementation of the Special Voluntary Disclosure Programme (SVDP) for indirect taxes administered by the customs department.
It also said the government was aware that a conducive investment environment – whether for foreign or domestic direct investments – encompassed many aspects, including economic and political stability, consistent and transparent policies, efficient labour market, reliable infrastructure facilities, sound governance structure, strong legal framework and decent quality of life.
“Fiscal incentives, including taxes, are one of the many factors that can attract investment; they can play an important role as a strategic policy tool in order to drive investments in Malaysia,” the pre-budget statement added.-BERNAMA