Will there be surprises?
BUDGET 2017 is expected to be a populist budget providing goodies to the rakyat and industry could be placated with specific incentives to spur growth and productivity. Fiscal prudence will be maintained to ensure the fiscal deficit is reduced to 3% of the gross domestic product (GDP) in 2017.
Tackling the rising cost of living faced by the lower and middle income groups, who are suffering from rising prices and stagnating income, will be the priority of the government.
The world economy, with the exception of the US and possibly India, is looking rather gloomy in light of the Brexit vote by the UK, the slump in oil prices and political crises in many parts of the world such as the Syrian migration to Europe and the slowdown of the Chinese economy.
Budget 2017 is expected to acknowledge the current economic environment and deal with it on a head-on basis to keep the growth engine moving and to provide temporary assistance to the rakyat.
Goodies for the rakyat Bantuan Rakyat 1 Malaysia (BR1M) currently given to households earning less than RM3,000 a month will continue and may increase, possibly extending to more people.The M40 group – households with monthly income of between RM3,860 and RM8,320 – can expect additional personal income tax reliefs and rebates for one or two years for them to tide over the current difficulties. Employees Provident Fund (EPF) and life insurance relief could be increased from RM6,000 to perhaps RM8,000. The one-off special tax relief of RM2,000 for taxpayers earning RM8,000 or below may be extended and the amount may be increased.
Affordable housing tops the wish list of most low and middle-income Malaysians. Some of the measures which may be taken to address this are higher withdrawal from EPF Account 2 for first-time home buyers, allowing applicants to receive full loan for houses priced below RM300,000, deduction of interest on housing loan and extension of 50 per cent stamp duty exemption on transfer and loan agreements for property below RM500,000. There may be possible deferment of the increase in toll charges.
What is in store for the corporate sector? The corporate income tax rates are not expected to be reduced in Budget 2017. In the medium term, say, in the next four to five years, the government may indicate a progressive reduction in income tax rates to be in line with that of our neighbours such as Thailand and Vietnam whose corporate tax rate is 20%. Key economic growth sectors like the digital economy, services industry and the export sector may be further incentivised.
Tightening the administration The government’s tax revenue is under stress. It will be a challenge for both the Royal Malaysian Customs Department (Customs) and the Inland Revenue Board (IRB) to meet their target collection of RM39 billion and about RM125 billion respectively due to the drop in consumer spending and corporate profits.
We expect the enforcement of tax administration to be tightened. There will be greater vigilance by the Customs and the IRB in conducting audits and enforcing the tax rules.
Penalties will be strictly imposed. To encourage tax payers to voluntarily disclose understated or undeclared taxes, the “tax amnesty” programme announced in the revised Budget 2016 could be extended into 2017 with further sweeteners such as lower penalty if they come into “open” within a short period.
Any increase in the Goods and Services Tax (GST) rate? We do not foresee any change in the GST rate. The government could look into expanding the “zero-rated” category to reduce the GST rate of more basic commodities.
In this election budget, the government will surely take steps to address the wish list of the rakyat. In spite of the economic challenges, Budget 2017 will be a positive one addressing our problems and it may contain pleasant surprises for individuals and special groups such as civil servants and pensioners. As the saying goes, “Every cloud has a silver lining.”
Let us look forward to a better year.
The writer is the managing director of Crowe Horwath KL Tax Sdn Bhd and a trustee of the Malaysian Tax Research Foundation.