Budget 2018 – possible goodies and its financing

What tax goodies to expect? On a personal tax level, the middle class group earning up to RM8,000 can expect their taxes to be lowered through the widening of the tax bands so that some of their income will be taxed at lower rates.

The other increases in personal reliefs could be: medical insurance and medical costs incurred for parents or family members with special medical needs; a special relief of RM2,000 for a year as they did in 2015; increase in the lifestyle relief from RM2,500 to say RM3,000 to encourage citizens to stay healthy and mentally alert; temporary mortgage interest relief for a limited period to help first time house buyers; increase in contribution to private pension schemes, and more help may be given to women to help them get back to work.

For the corporates, there could be incentives given to industries of the future: digital business encompassing big data analytics, artificial intelligence, industries using robotics/automation and energy saving equipment. There could also be tinkering with existing incentives to meet current needs and reduce the bureaucracy surrounding the incentive approval process.

The SME sector will continue to receive benefits in the form of subsidies rather than through significant tax incentives. They could also be given other forms of capital or loans or grants etc.

On the GST front, there will be no rate change but perhaps the refund process could be reviewed to expedite the refunds. More essential items could be zero rated or exempted to help the poor and middle classes offset the increase in the cost of living.

How will it be financed? The money to pay for the above suggestions and to pay our government bills will have to come from a mixture of taxes, borrowings, sales of government assets or printing of money.

On the taxation front, the measures to raise taxes could include: GST – more items consumed by the rich could be transferred from zero rating to standard rating and other key focus by the Royal Malaysian Customs Department (RMCD) will be to ensure that laws and rules are more strictly applied so that avenues to escape paying GST are significantly narrowed. There will also be greater emphasis on ensuring that tax defaulters will be hauled up much sooner rather than later.

The increase in tax revenues for the Internal Revenue Board (IRB) will come from rigorous application of tax compliance through deterrence such as increased penalties, more IRB ground operations visiting taxpayer’s premises; amendments to the existing withholding tax provisions, greater use of the antiavoidance provisions; possible disallowance of a portion of the inter-company interest, as this is usually used in aggressive tax planning; more rules to attack abusive transfer pricing.

There will be increased focus on targeting the “black economy” by both agencies and they will cross share information to catch the defaulter.

Unlikely to happen Inheritance tax is unlikely to be introduced. It was abolished a long time ago because it was difficult to collect. Since it is applicable only to the rich and wealthy, they can afford to buy the best tax advice and plan them themselves out of this tax well in advance. Reduction in the corporate personal taxes is unlikely. However, there may be an announcement to gradually reduce the corporate tax rate over a number years to 20% like Thailand and Vietnam.

Overall the compliance and enforcement environment will become more difficult.

The writer is the managing director of Crowe Horwath Tax Sdn Bhd and a trustee of the Malaysia Tax Research Foundation.