Corporate tax reduction possible when the tax base is broadened and growth stronger – Tengku Zafrul

KUALA LUMPUR (September 2): Malaysia cannot afford a corporate tax cut, which is currently 24%, unless the country’s tax base is broadened and the country maintains a trajectory above average growth, said Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said today.

“If you look at the corporate tax, it makes up a large portion of federal government revenue – about 32.8% of federal government revenue, including petroleum income tax and taking into account the widening of the budget deficit which should be around 6.5% this year due to the pandemic.

“(Therefore) Malaysia, I think, is not in a position at this stage to afford a lower tax rate because one of the problems is our narrow tax base. Until we can broaden our tax base and maintain an above-average growth path, we can consider reducing the corporate tax rate, ”he said in an interview with the Straits Times of Singapore. titled: “Beyond the Pandemic: The Way Forward for Malaysia”.

However, as the global trend favors lower corporate taxes, Malaysia in the future may need to revise its corporate structure to realign itself with broader economic growth in the medium term, a- he said when asked if Malaysia would consider cutting its corporate tax by 15% over the next 3-5 years.

Malaysia’s corporate tax is among the highest in ASEAN. Singapore has the lowest at 17%, Vietnam, Thailand and Cambodia at 20% and Indonesia at 22%.

“That said, lower corporate taxes are not the only element to attract foreign direct investment (FDI). There are other key factors such as good infrastructure, human resources and clear regulations, ”said Tengku Zafrul.

In a recently released pre-budget statement, the Ministry of Finance (MoF) said the government was considering measures to increase tax revenue through greater tax compliance as well as addressing the problem of revenue leakage, including by Regarding smuggled goods estimated at 5 billion ringgit per year.

In a pre-budget statement, the Finance Ministry said that among the study’s recommendations is the implementation of the Special Voluntary Disclosure Program (SVDP) for indirect taxes administered by the Royal Malaysian Customs Department.

He also said the government is aware that an enabling environment for investment, whether it is foreign or domestic direct investment, encompasses many aspects, including economic and political stability, coherent and transparent policies. , an efficient labor market, level of infrastructure, a solid governance structure, legal framework and decent quality of life in Malaysia.

“Tax incentives, including taxes, are one of the many factors that can attract investment; they can play an important role as a strategic policy tool to stimulate investment in Malaysia.

Regarding the fight against revenue leakage, the Ministry of Finance in the 17-page document said that the multi-agency working group, chaired by the Ministry of Finance to formulate strategies to curb smuggling activities , was further strengthened by the participation of the Malaysian Anti-Corruption Commission and the National Anti-Corruption Commission. Financial Crime Prevention Center.

Elaborating on investor confidence and FDI, Tengku Zafrul admitted that he had been severely affected due to the Covid-19 pandemic and, to some extent, the national political situation.

“But despite all of this, we have seen a much better inflow of investment, especially with regards to FDI in the first half of 2021 compared to the first half of 2020. So if you look at our vaccination rate and as As more economic sectors are opening up, we expect an improvement in investment prospects in general. “

Malaysia remains a preferred investment destination due to its well-developed investment ecosystem.

“In addition, what is equally important is domestic direct investment (IDD), which we continue to focus on,” said Tengku Zafrul.

Regarding other developments, the finance minister said the government would not draw on national reserves to finance the next budget.

When asked if Malaysia would allow the private sector to play a bigger role in infrastructure finance, he said now is the time to kick-start more public-private partnerships and cited the 5G infrastructure project. .

“Other infrastructure projects that may require private sector participation will be rail projects that were recently announced. “

Commenting on political stability, he said the Keluarga Malaysia concept introduced by Prime Minister Datuk Seri Ismail Sabri Yaakob focuses on continuity and in particular on the challenges of Covid-19.

“Political leaders must strive for political stability, as we know, political turmoil is too costly for our economy and affects investor confidence in the short, medium and long term.

“Most importantly, we also need to regain the confidence of Malaysians in the government’s exit strategy, fundamentally. We need to work together as a family or Keluarga Malaysia,” he stressed.

In addition, Tengku Zafrul is optimistic that together with opposition politicians, they will work together to support the country’s recovery and build a more resilient and sustainable future for all.

“For us at the Ministry of Finance, just like the 2021 budget, we will try to consult as many parties as possible in the preparation of the 2022 budget. In fact, we have started the stakeholder engagements.

“We will be looking at how to get feedback that we can include in our reformed recovery resilient budget.

“I am optimistic that a safe passage for the 2022 budget will be created and that the government has enough space and support to navigate these difficult terrains in the short to medium term while accommodating the economic recovery,” he said. he declares.

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