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The Sun Daily: Budget 2020: Are We Prepared To Take Bold Steps?

Repost of publication on The Sun Daily on 30 September 2019.
The world economy is not in good shape and its clearly slowing down. Aside from the unpredictable Trump factor, the China-US trade war, Saudi-Iran conflict, Brexit, etc. Budget 2020 requires our Finance Minister to do something dramatic.

A few days ago, the Indian Finance Minister came in with a “bazooka” and slashed corporate tax rate from 30% to 25% to capitalise on driving investments into India from the China-US trade war. This was big bang from a big economy.

Bold financial measures which will impact the economy:
- Reduce corporate tax from 24% to 20%. This will bring us in line with Vietnam, Cambodia, Thailand, Indonesia and closer to Singapore and Hong Kong. The reduced tax revenue will free up money for private investments and spur private consumption.

- Reduce bureaucracy: Exempt small businesses with a turnover up to RM5 million from filing income tax returns. Instead tax them based on their revenues (a rate between 3% - 5%).

- Micro businesses whose turnover is less than RM1,000,000 should be exempted from all taxes to encourage small and young entrepreneurs to start up their own businesses. However, rules should be introduced to discourage larger business enterprises from fragmenting their businesses into smaller units to take advantage of this benefit.

- The reinvestment allowance and automation capital allowance should be extended for a further 2 years to encourage business enterprises to modernise/automate their businesses in line with the Industry4WRD national policy.

- Pay tax only when you cash in on the profits: Remove tax inconsistencies where tax has to be paid due to an accounting reclassification (i.e. transfer from stock to fixed assets and vice versa) without receiving the cash. Review the tax legislation and remove such inconsistencies which handicaps businesses.

- Align the taxation of income received in advance with the expenses that should be matched against such income. At the moment such income is taxed in advance but the tax deduction is deferred to a later date. This will avoid businesses unnecessarily paying taxes in advance and obtaining a tax deduction later.

- Reduce individual tax rates to match the current corporate tax rate. It is already a common practice to avoid the high tax rate by incorporating companies to receive the excess taxable income as non-taxable dividend income. It doesn’t make much sense to tax these individuals who are usually senior people in large corporations or heads of family companies. These are entrepreneurs who generate a lot of employment and it is counterproductive to tax them at higher rates.

- Grant an additional tax relief for parents to pay for children tuition fees which is a norm in society. The tax relief should be granted based on the level of education of the child (RM3,000 for primary students and RM5,000 for secondary students).

- Continue with the Bantuan Sara Hidup Rakyat programme. Cash assistance to the needy will translate into a multiplier effect on goods and services and the economy.

- Grant first-time homeowners a relief on interest paid for housing loans. This will stimulate the dull property market.

Reduction of interest rates alone will not stimulate the economy. Fiscal measures including fundamental tax policy rethink is needed in the current climate as the downturn in the world economy could be a prolonged one and we cannot see the current conflicts nor the Brexit issues being resolved soon. Boldness is the key in this budget. Be bold Mr Finance Minister!