PUTRAJAYA is walking a tightrope between generating as much revenue as possible without sacrificing too much growth in Budget 2019, said tax consultants. 

The government revised the gross domestic product (GDP) rate from the previous 5.0%-5.5% to 4.8% for 2018 in light of global headwinds. 

Finance Minister Lim Guan Eng tabled a RM314.5 billion budget yesterday of which RM259.8 billion is for operational expenditure and RM54.7 billion for development expenditure.

The total is higher than the RM290.4 billion expenditure under Barisan Nasional in Budget 2018.

“From a run-through of the budget, some projects were cut out. They cannot afford to pay the long-term debts that were built up because they cannot pay for these long-term projects,” said tax consultant Veerinderjeet Singh. 

“I’m not too worried about the budget increasing, however. Growing an economy would mean increasing the budget every year. It cannot decline because that would mean they would be cutting back on development expenditure or even operating expenditure. 

“But it appears that the government has found it difficult to cut on both substantially. The worry is that if you cut down on expenditures significantly, it may end up curtailing economic growth.”

Veerinderjeet said a more detailed report from the Finance Ministry would show where the money would go.

“One of the ways is to look at each ministry’s allocation and compare with them with previous years and see who has got substantial increases and why.”

Supporting growth, helping B40

The corporate income tax rate for income of up to RM500,000 and SMEs with less than RM2.5 million in paid-up capital is reduced from 18% to 17%.

SMEs (small and medium enterprises) constitute 98.5% of businesses in the country. 

“That’s actually a pleasant surprise,” said Chua Tia Guan, a tax and financial consultant.

“The government wants to support growth, especially the SMEs. They recognise that they need help. This is why despite a difficult situation, the government took the step to reduced corporate tax rate by 1%, to stimulate growth.

“SMEs employ about two-thirds of the workforce of the country, but they only contribute one-third of the GDP. That shows that in terms of value-added contribution, it’s actually not high. As a result of that, the wages are not so high as well.

“If they can go up, their goods and services can be sold at a better price. The theory is that (the firms) would be having better margins, and they would pay (their workers) better wages and in turn, increase consumers’ purchasing power.”

Chua said the budget spending had increased due to the commitments the government made with the lower-income B40 households and with operating expenditures. 

“The civil service alone costs the government about 42%. Whatever they can do, they’ve already done it, like cutting back on political appointees. But there’s only so much they can do short term.

“To be fair to the civil servants, if you want a right-sizing (of the government), well, they also have their families to feed. We need to give them opportunities to increase their productivity and it’s going to take some time.”

Welfare for the lower-income groups is being reduced gradually and that other subsidies are more targeted, such as petrol subsidies for owners of 1.5L vehicles and 125cc motorcycles, he said.

“The government is reducing welfare, such as Bantuan Sara Hidup (cost-of-living allowance), but they cannot chop (some programmes) outright. There (are) 1.4 million families who need help, and they can’t afford a knee-jerk reaction and just take (welfare) away.

“As for the petrol subsidies, the government spent RM3 billion on RON95 (subsidies) so far. They could easily spend up to RM6 billion next year, if they don’t make it more targeted.”

Zeroing in on tax dodgers

Among the government tax reforms is a newly announced special voluntary disclosure programme, which allows taxpayers to declare any unreported income for tax purposes, including from offshore accounts.

The programme will be offered from November 3 until June 30, 2019 where taxpayers will receive reduced penalty rates. 

If disclosure of unreported income is made from November 3 until 31 March 2019, the penalty will be 10% of the tax payable. If disclosure is made from April 1 until June 30, 2019, the penalty will be 15% of the tax payable.

After the programme ends on June 30, 2019, the penalty rates range from 80% to the maximum of 300% as provided for in the existing tax laws. 

Lim also said in his speech yesterday that Malaysia is now a participant of the Organisation for Economic and Cooperation and Development (OECD) common reporting standards, whereby the government will receive automatic exchange of financial account information with the tax authorities globally.

“There are 104 countries involved in the programme,” said Chua.

“The government wants to give a chance to all taxpayers who have not fully disclosed their income, who have disclosed wrongly, an opportunity to come clean so that they can report back all the income that they under-reported.”

Veerinderjeet expects the programme to bring in several billions. 

“They’re trying to get those who under-reported their incomes to come forward and volunteer,” he said adding that there is a “substantial underground economy” of tax dodgers. 

“The penalty was 100% and sometimes up to 300%. They’ll get a very good deal here.” – November 3, 2018.