Major new taxes unlikely, tweaks in SST possible
KUALA LUMPUR: While analysts are projecting that there will be no major new taxes in Budget 2019, there may be possible tweaks in the Sales and Service Tax (SST).
The research arm of Maybank Investment Bank Bhd (Maybank IB Research) does not expect major new taxes in Budget 2019, notwithstanding the mention of taxation on online transactions and carbon tax in the 11th Malaysia Plan Mid-Term Review (11MP MTR) as well as the speculations of capital gains tax and inheritance tax.
“Furthermore, the Tax System Review Panel that is tasked to look at and propose tax system reforms and overhauls to diversify tax revenues, make the tax system progressive, minimise tax losses due to leakages and evasions, as well as review tax incentives was only ‘operational’ in September 2018,” Maybank IB Research said.
“We understand that the current plan or timeline is for the Panel to submit its recommendations to the Government in mid-2019, implying any major new taxes are more likely to materialise in Budget 2020 at the earliest, if not later.”
“In fact, 11MP MTR specifically mentioned the diversification of revenue via higher contribution of indirect taxes and non-tax revenue. Therefore, these are the revenue areas to look at in Budget 2019.”
On the other hand, Maybank IB Research believed that there may be possible adjustments in SST, especially Services Tax on discretionary and financial services that reflect income or wealth and ability to pay.
While the decision to abolish the Goods and Services Tax (GST) and revert back to SST is part of the Pakatan Harapan Government’s general election promise to address the cost of living issue, the research arm felt that the Services Tax part of SST can be expanded to cover spending on discretionary and financial services that are a function of income or wealth, hence the ability to pay, and is therefore not regressive.
“For example, a six per cent Service Tax can be levied on brokerage, clearing and custodian fees in shares and bond trading to replace the abolished six per cent GST that was charged previously.”
Additionally, the research arm highlighted that SST can also be extended to cover online transactions, which is consistent with the observed trend of taxing the digital economy via indirect or consumption-based tax given the complexity of direct or income taxation of the digital economy.
“For example, effective January 1, 2020, Singapore will levy GST on business-to-business (B2B) and business-to-consumer (B2C) imported online services such as marketing, accounting, IT, management services, video and music streaming, apps, software, listing fees on electronic marketplace and online subscription fees.
“Based on Euromonitor data, Malaysia’s B2C e-commerce is RM12.2 billion or 2.7 per cent of the total RM450 billion retail sales value in 2017. It is projected to grow to RM13 billion in 2018 and to RM15b in 2020. So for example a six per cent services tax on this will yield less than RM1 billion in revenue annually.
“However, B2C e-commerce is only about 10 per cent of total ecommerce in Malaysia, with the bulk being B2B, so more revenue can be generated if the tax is charged on both B2C and B2B ecommerce.”
Given its view of no major new taxes being introduced in Budget 2019 and the unlikely prospect of corporate and personal income tax increases, Maybank IB Research instead sees the potential adjustments in the “sin tax”.
“Noticeably, the ‘sin tax’ in the gaming industry has not been reviewed for a while. As for alcoholic beverages and cigarettes which are subjected to a 10 per cent Sales Tax under the SST regime, the issue for the affected industries is whether there can be effective enforcement to curb the illicit market.
“The way we see it, the abolition of GST frees up Customs manpower and resources from GST auditing to beef up and tighten the enforcement together with other relevant agencies.”
As for the “soda tax”, Maybank IB Research noted that the “sin tax” universe may be expanded to include this category.
It further noted that the soda tax is gaining traction worldwide on health grounds, especially in dealing with the issues of diabetes and obesity.
“The tax is typically charged in the form of a specific tax i.e. a fixed amount per unit measurement. It is perhaps the easiest of the possible new taxes to implement in Budget 2019, and was mentioned by Tony Pua MP, Special Officer to the Minister of Finance. To note also, sugary beverages are currently levied 10 per cent Sales Tax under the SST.”