Budget proposals to address the issue of spiralling costs
THE 9.5% to 10% hike in petrol and diesel prices from last Thursday would compound the anticipated cost escalation caused by the Goods and Services Tax (GST) to be introduced on April 1. While wealthy individuals and large corporations have the resilience to embrace the challenges brought on by rising costs, the lower and middle income group and the small and medium enterprises (SMEs) may not withstand the headwinds. What are the tax measures that the Government can propose in Budget 2015 to alleviate such a burden?
In Budget 2014, the Government had committed to reduce the existing corporate tax rates. Following this, a Malaysian SME would be taxed 19% on its first RM500,000 of chargeable income with the remainder taxed at 24% from year of assessment 2016 onwards.
While such reductions are notable, the Government should aim at reducing the headline tax rate to 22% by 2017 to enhance our global competitiveness as the tax rates of Thailand and Vietnam are already in the region of 20% to 22%. Meanwhile, the chargeable income band that is accorded with the preferential tax rate to SMEs could be increased from RM500,000 to RM1mil.
Currently, group tax relief is accorded to larger corporations with paid up capital of more than RM2.5mil. Such a relief allows losses incurred in one company to be utilised against the profits of another company within the group. It is hoped that such relief can be extended to SMEs so that SMEs that diversified into other businesses can better manage their overall group tax exposure.
SMEs will need to incur additional costs to be GST-ready and compliant. Such costs include training of personnel and acquiring new software and hardware. Presently, eVoucher of RM1,000 is offered to eligible SMEs for system set-up. However, most of the SMEs contend that the actual cost incurred is much higher. Hence, an annual financial assistance of RM1,000 may be given to SMEs to cover the software maintenance cost for the subsequent two years.
Due to the size of their operations, there are limitations for SMEs to expand their businesses. At present, income tax and stamp duty exemptions are given to mergers and acquisitions (M&As) of businesses in certain service sectors only.
To encourage SMEs to merge to reap the benefits of economies-of-scale, such exemptions should be extended to SMEs operating in all sectors. In addition, the upcoming budget can consider providing M&A allowance by granting tax deduction say, 10% of the cost of acquiring business subject to a maximum amount of RM1mil.
To address the issue of home ownership, the Government will likely allocate more funding for the supply of affordable housing in the upcoming budget. Stamp duty exemptions on the purchase of houses not exceeding RM400,000 and loan agreements that will be expiring 2014 and 2016 respectively should be extended as it is likely that many people will still not own a house by then.
It is hoped that the Government will introduce some form of assistance to eligible first time home buyers as in Australia and Singapore to cushion the impact of the GST. Such assistance may include subsidising a portion of the interest expense or deposit paid on the property.
At present, some basic necessities are zerorated whilst others are not. To help the poor, the Government may consider zero rating fruits, school uniforms and shoes as well. With the recent increase in the price of petrol, the people would be glad if petrol is not subject to GST.
In the Budget 2014, the personal income tax rates were reduced by 1% to 3%. A special oneoff tax relief of RM2,000 was also granted to middle-income earners. To cope with rising cost of living, personal and child reliefs of RM9,000 and RM1,000 per child respectively could be increased by RM1,000 each. The Government may wish to reintroduce interest expense deduction of RM10,000 per annum for the first time home buyers.