THERE are no major changes to the country’s tax regime under Budget 2020, signalling Putrajaya’s reluctance to rock the boat in a slowing economic environment, said tax experts.

The only tax incentives proposed under Budget 2020 are the 2% income tax hike at the highest bracket of earners, some incentives for small-medium enterprises and a tax break in real property gains tax, they said.

PwC International Assignment Services Sdn Bhd director Lim Phing Phing said while there is no major shift in economic policies, the budget proposals reflected Putrajaya’s continued commitment to promoting job creation, strengthening the M40 and B40 groups and growing the economy.

“Much of the individual tax reliefs and deductions introduced are aimed at enhancing equality and inclusivity as well as inculcating a socially responsible society,” Lim told The Malaysian Insight.

She said the increase in the highest marginal income tax rate to 30% – up from 28% – for resident individuals will impact a small proportion of the rakyat.

The move is widely seen as an attempt to narrow the income inequality gap between the T20 and B40 groups, she added.

The increase will affect about 2,000 top income-earners in the country.

“The increase of personal tax rate to 30 % may not be welcomed by the T20 group,” said Steve Chia, a partner at PwC Taxation Services Sdn Bhd.

“While this only impacts a small group of people, this would encourage them to corporatise using companies to enjoy a lower tax rate.”

Tax break on property sales

When tabling the budget on the imposition of real property gains tax (RPGT) on the disposal of properties after five years, Finance Minister Lim Guan Eng said the government is revising the base year for asset acquisition to January 1, 2013 compared with the previous base year of January 1, 2000.

“Now, in Budget 2020, the government has announced that any capital appreciation prior to January 1, 2013 would not be subject to tax,” said Thenesh Kannaa, Partner at Thenesh, Renga & Associates (Tratax).

The measure, which is take immediate effect, may increase liquidity in the property market, he said.

“People were expecting there would be a 5% RGPT, but the government stood fast that this is to remain,” said Veerinderjeet Singh, president of the Malaysian Institute of Certified Public Accountants.

“Now, if you sell your property, you’ll only need to compare with the market price in 2013. You’ll only be paying for that difference. The value of property in 2000 and the value in 2013 is very much different. So, in that sense, your taxable amount would be much smaller. It significant,” he said.

SME incentives

To support the growth of SMEs, Lim also announced that the chargeable income subjected to 17% corporate rate will be increased to RM600,000, subject to the SME having a paid-up capital of not more than RM2.5 million and annual sales of not more than RM50 million.

“I expected him to reduce corporate tax. He didn’t do anything,” said Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai.

“They could have taken the bold decision to reduce the corporate tax but I think he’s caught in a situation where because so much of other incentives have been given out, he cannot reduce the corporate tax.

“The budget has to be balanced and the bigger companies have to keep paying for it.”

Malaysia’s standard corporate tax rate is 24%.

Thannermalai said Putrajaya also appears to be taking advantage of the trade war between US and China.

“He (Lim) is looking at the large unicorns. He wants to bring in the large Fortune 500 companies that he thinks with the trade war between US and China, they may come to Malaysia.

“He’s trying to bring in the big boys. He’s also afraid that the electrical and electronics industry may migrate to Vietnam and elsewhere.”

Lim said the government expects to collect RM244.5 billion in 2020, an increase of RM11.2 billion from 2019, after excluding the one-off Petronas special dividend of RM30 billion. – October 12, 2019.