MORE taxes and levies could have been introduced in the Budget 2021 to increase contributions from the top-tier income groups as the government is expecting higher revenue from tax collection next year.
In the freshly announced budget by Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz, the government sought to strike a balance between regaining Malaysians’ purchasing power and strengthening the government’s coffer.
In the Fiscal Outlook and Federal Government Revenue Estimates 2021 released on the same day, the government is expecting a tax collection of RM174.37 billion backed by higher contributions from direct and indirect tax revenues.
However, there was not much focus on taxing businesses or individuals who are planning to spend extra monies to generate revenue for the country, said Thannees Tax Consulting Services Sdn Bhd MD SM Thanneermalai.
He said some of the missed points with regard to taxation in the budget were the non-introduction of extra profit tax such as the windfall tax on glovemakers and the expansion of the taxable items under the Sales and Services Tax (SST) list.
“I believe (the government) missed it at SST as they are afraid they will be taking money out of the economy. The government needs the money but didn’t widen it on people who are at the higher end of the income bracket.
“As the SST is paid by the final users, they could have imposed the tax on a wide range of products and services for those who could afford it,” he told The Malaysian Reserve (TMR).
The windfall tax was highly anticipated to be introduced, particularly on the glove manufacturers in Malaysia who have been generating exceptional gains during the Covid-19 pandemic.
While the profit tax was absent from Tengku Zafrul’s speech, he announced that Top Glove Corp Bhd, Hartalega Holdings Bhd, Supermax Corp Bhd and Kossan Rubber Industries Bhd have agreed to contribute a combined total of RM400 million to assist the country in combating the Covid-19 outbreak.
Thanneermalai said a fixed contribution from glove manufacturers could have been introduced as the glove industry is expected to sustain its gains for several years.
“The contribution from glove manufacturers, in my opinion, is a trade-off, as people were talking about windfall as they were making super-profits as a result of our difficulties.
“When you are making exceptional profits, you have to start paying taxes for the abnormal amount that you have made and cannot only rely on dividends as only certain individuals are benefitting and not the whole country,” he said.
He added that while the one-off RM400 million contribution will be helpful, it may not be the best way to be carried out in the future.
“The companies decided to contribute the money. It is good temporarily, but it seems like the government is doing a deal with the corporate sector, and this may not be a good way to go in the long run” he said.
Duties on e-Cigarettes
The Budget 2021 saw the government move to tackle the sales of illegal cigarettes in the market by strengthening its import activities of high-duty goods, coupled with the introduction of ad valorem 10% excise duty on devices for all types of electronic cigarettes (e-cigarettes) and non e-cigarettes-inducing vapes.
Presently, e-cigarettes including vape are not subjected to excise duty according to the Control of Tobacco Product Regulations 2004.
The liquid used in e-cigarettes, meanwhile will have a duty of 40 sen per millilitre.
On this, Thanneermalai said the duty imposed on the devices including the vape liquid could generate hundreds of millions of ringgit to the government’s tax revenue.
KPMG Malaysia head of tax Tai Lai Kok told TMR that while taxing the e-cigarettes could result in a streamlined industry, a rise in retail prices could also result in illegal trading as observed in the tobacco industry currently.
“The topic of taxing e-cigarettes and non e-cigarettes has been around for several years.
“Proponents would argue this will streamline and regulate the entire cigarette industry, putting all players on a level playing field while generating additional revenue for the government.
“But, if the prices of the regulated e-cigarettes become too expensive, the concern will be whether this will lead to the emergence of illicit trade as can be seen in the traditional cigarette industry,” he said.
The new excise duty also poses an immediate challenge of product classification according to the relevant legislation and orders including businesses along the supply chain who are subjected to the duty, Tai said.
“It is still unclear of exactly how much the e-cigarettes will contribute to the excise duty as it could take some time for a ‘new’ tax to be adopted, collected and settled in.
“The expected level of consumer demand for e-cigarettes in 2021 cannot be clearly estimated. Note this has not included the Sales Tax, which is calculated on top of the excise duty as well,” he said.
The government projected (in the earnings estimates for 2021) the excise duties on locally manufactured and imported cigarettes to contribute RM2.73 billion to the indirect tax revenue next year.
The current Sales Tax of 10% and a 40-sen excise duty per stick for imported and locally produced cigarettes are also maintained.
In the budget, the revenue collection strategies on cigarettes were also mentioned to be improved with the strengthening of the Multi-Agency Task Force and the inclusion of the Malaysian Anti-Corruption Commission and the National Anti-Financial Crime Centre.
The government also added measures such as freezing new import licences for cigarettes, tightening the renewal of existing licences, limiting cigarette transhipment to only dedicated ports and making cigarettes and tobacco products as taxable goods at all duty-free islands.
Tax Cuts and Incentives
Financial reliefs in the form of tax reduction and exemptions were mentioned in Budget 2021 and form part of the economic stimulus packages announced throughout 2020.
The income tax reduction of one percentage point for those with taxable wages between RM50,000 and RM70,000 in Budget 2021 is expected to benefit 1.4 million taxpayers.
Deloitte Tax Malaysia ED Chee Ying Cheng said while the lower income tax rate is a relief to the middle 40% income (M40) group, the reduction alone may not significantly ease the group’s financial burden.
“The 1% reduction in the tax rate is a welcome rain after a long drought for the M40 group. The tax rate for this income bracket group is currently at 14% since the year of assessment 2018 and based on the budget proposal, the 1% reduction would effectively bring a RM200 saving to individual taxpayers.
“The reduction alone may not significantly ease the financial burden. However, if we consolidate it with other initiatives, it will increase the rakyat’s disposable income,” she told TMR.
Apart from reduced income tax, increased tax relief on medical expenses for medical treatment covering vaccination expenses, serious diseases, special needs and parental care was also mentioned.
Other incentives include tax relief extension for Private Retirement Scheme contributors and increased tax relief limit on expenses for disabled partners from RM3,500 to RM5,000.
Tax incentives are offered for employment of former convicts and senior citizens, financing tertiary education and public transportation.
To help fuel consumption, the minimum contribution rate of Employees Provident Fund will be reduced to 9% from 11% beginning next year for 12 months with about RM9.3 billion expected to be channelled into the economy from the move.