MALAYSIA’S Budget 2020 will be tabled in Parliament on Oct 11. As announced by Finance Minister Lim Guan Eng, the theme for this year’s budget is “Shared Prosperity: Engendering High-Quality Inclusive Growth Towards High Income Economy”.
Growth across Asia is set to moderate this year and next year against the backdrop of slowing global demand and persistent trade tensions. The Malaysian Institute of Certified Public Accountants (MICPA) lauds the government’s intensified efforts to achieve sustainable high-quality growth for the benefits of every segment of our society.
With this objective in mind, we highlight below a wish list for Budget 2020:
A simplified tax system for small businesses to contribute to the country’s tax base
Small businesses such as hawkers, small contractors and petty traders often do not have sufficient resources to maintain complete books of accounts for tax purposes. A simplified system of taxation may be considered for small businesses whereby their income may be ascertained as a reasonable percentage of their turnover. Different percentages may be applied for different types of businesses, based on statistics compiled by the government in consultation with business chambers. This would allow small businesses to significantly ease their cost of doing business and burden of tax compliance. At the same time, the country’s tax base can be quickly broadened by the participation of small businesses.
For small businesses that decide to maintain complete books of account for tax purposes, they should be allowed to do so without adopting the simplified method of computing their income so long as they consistently do the same for future years.
Deduction of financing cost incurred on purchase of real property for Real Property Gains Tax (RPGT) purposes
Since Jan 1, 2010, interest paid on loans taken by a purchaser to acquire a real property is no longer deductible for RPGT purposes when the property is sold. For the majority of property buyers, without financing they would not be able to buy their properties. In other words, the interest expense incurred by them is very much a significant and inevitable cost of acquisition. If the interest expense is not allowed in computing their gain liable to RPGT when the property is sold, the gain is artificially inflated by the disallowance. This can result in unfair financial burden given that the RPGT payable if the property is sold within three years of ownership is at the rather high rate of 30%.
In order that RPGT is charged on the actual gain derived from the sale of a property, it is proposed that the financing cost be allowed in computing gains liable to RPGT. This is also in line with the equitable practice before Jan 1, 2010.
Encouraging SMEs to scale up through strategic acquisition
In 2017, SMEs contributed 37.1% to Malaysia’s GDP and 66% of employment . Given that the SME segment is an important engine of growth for the country, measures should be introduced to encourage SMEs to actively grow their businesses and raise their competitiveness through strategic acquisitions. In particular, SMEs need to re-position themselves to seize opportunities from the digital economy.
A mergers and acquisitions (M&A) scheme may be introduced under which a SME which acquires the ordinary shares of another company within a qualifying sector will be given an M&A allowance equivalent to 25% of the value of acquisition subject to a cap of RM10 million for each year of assessment. Double deduction can also be granted on transaction costs on qualifying share acquisition, subject to an expenditure cap. The objective is to spur SMEs to scale up and actively participate in the global value chain, Industrial Revolution (IR) 4.0 and digitalisation.
Tax relief for interest incurred by first-time house buyers
With effect from the year of assessment 2009, a Malaysian citizen and resident is granted a tax relief for interest paid on a loan taken to purchase residential property (limited to only one unit) provided he has not derived any income from the property. The relief is up to a maximum of RM10,000 for each year of assessment for a period of three consecutive years and is given only if the agreement for the purchase was executed on or after March 10, 2009 but not later than Dec 31, 2010.
In order to assist Malaysians to own their first residential home, we propose that the interest relief above be re-introduced for first-time buyers of residential properties priced up to RM1 million, taking into account the prices of residential properties in the country’s main cities. At the same time, measures should be considered to introduce a higher margin of financing, longer loan tenure and lower interest rates for first-time buyers within this category.