In an attempt to revive the economy, the government, in the PENJANA economic recovery scheme vis-à-vis housing segment, is giving tax exemptions, e.g. waiver of stamp duty and exemption of real property gains tax (RPGT) to revive the property sector which is seen as an important sector as many downstream sectors are dependent on the property sector, such as cement, sand, steel, etc.

These merely benefits a meagre segment of the population and the question is: What is there for the ordinary folks, i.e. the tax payers?

Waive or, at the least, offer 50 per cent rebate on Personal Income Tax across the board

We have to be honest about the current economic situation that is affecting not just Malaysia but the entire world as a result of COVID-19. The International Monetary Fund (IMF) has predicted that there will be a global recession in 2020 and BNM has estimated that the Malaysian GDP could contract by 2.0 per cent in 2020. It also has been reported in the local media that many big companies are reducing their headcount and many other smaller and medium-sized companies have closed down.

In the wake of all these challenges, the average individual such as Ahmad would be prudent to put off any large chunky acquisition such as cars and properties until the economic outlook is more certain. However, in the meantime, Ahmad still has to put food on the table for his family and reduce any unnecessary expenses as much as possible.

However, there is one expense that Ahmad can never reduce no matter how much he tries and that expense is called personal income tax. Ahmad can try to eat less or even take the bus to work to try to save more money. But every month, the same amount of Ahmad’s income goes to pay income tax.

If the government is really serious and sincere about wanting to ease the burden and suffering of the people across the board, with the clarion cry of ‘no Malaysian to be left out’, the government can do so by granting an income tax ‘wholesome’ waiver or at least a reduction of 50 per cent (from the current scale rate) for the first RM100,000 in chargeable income for the next two years.

We chose RM100,000 because this amount was used as the threshold to receive the RM30 e-wallet in Budget 2020 and also the RM50 under the ePENJANA initiative. Based on chargeable income of RM100,000 and the tax rate for 2020, the 50 per cent tax reduction will translate to annual tax savings of RM5,450 or additional disposable income of RM454 per month which will greatly add the monthly cash flow and result in a boost to retail spending and uplift the economy.

However, this 50 per cent income tax reduction should not be restricted to those earning below RM100,000 but applicable for the first RM100,000, meaning anyone earning more than RM100,000 would also be able to enjoy this proposed tax reduction.

Many people who supposedly earn more than RM100,000 per year are just salaried employees who are in the ‘sandwich’ group (supporting elderly parents and young children) and consider themselves to still be ‘middle income’ although they may fall under the so-called M40 group.

This so-called middle-income group are pleading to the government to understand that the economic slowdown due to COVID-19 affects everyone and not just those in the official B40 group.

Lets’ look at the figures – Personal and corporate income tax

Based on the fiscal outlook and Federal Government Revenue Estimates 2020 Report, personal income tax amounted to 13.4 per cent of the federal government revenue for 2019.

As we do not have the inside knowledge of the breakdown of the personal income tax collection, we cannot ascertain the full impact of the proposed tax exemption. However, assuming that this tax exemption will result in a fall of up to 50 per cent in lower personal income tax collected. Note that we believe that the actual fall would be much less than 50 per cent.

The fall of up to maximum 50 per cent would amount to loss of revenue of about 6.7 per cent which seems manageable as this money would be injected back into the local economy and possibly generate more economic activities which can offset the reduction in government revenue. It was quoted in a news daily recently:

“The impact (of the COVID-19 pandemic) would be minimal as the country had a strong revenue base to offset the shortfall in tax collection”, said Inland Revenue Board CEO Datuk Seri Dr Sabin Samitah

Similarly, the expense that companies cannot afford to reduce is corporate income tax. Companies can reduce headcount to cut cost but, just like Ahmad, they have to pay corporate income tax so long as these companies record a taxable profit.

The government should consider giving tax relief to the small and medium size industries (SMEs). SMEs are currently taxed at 17 per cent for the first RM600,000 in taxable income and the balance at RM24 per cent. The government could consider giving a 100 per cent tax relief on the first RM1.0 million in taxable income and the balance to be taxed at 24 per cent for the next three years. However, this tax relief should come with some strings attached, which is the SMEs should not retrench any local employees during the tax relief period.

For large corporates, the government should also consider giving some tax relief in the form of lower tax rates for the next three years, say from the current 24 per cent to 17 per cent. This will result in substantial savings of about 29 per cent to these corporates.

For 2019, corporate income tax amounted to 26.9 per cent of the federal government revenue; granting a tax relief could result in loss of revenue of about 8.1 per cent which is slightly more compared to the personal income tax relief of 6.7 per cent above.

However, the exemption in corporate income tax could potentially mean that these companies have more funds to sustain their operations and do not need to retrench or reduce headcount and could even have more funds to reinvest back into the company to increase production.

The savings from the reduced corporate tax would be invested back into the economy to generate more economic activities. As a safeguard, the reduced corporate income tax could come with certain covenants such as limiting the retrenchment of local employees.

The income tax waiver or reduction for both personal and corporates would be more far-reaching compared to generous tax exemptions for purchase of properties and have an immediate impact to the economy at large. The average individual will have more disposable income to spend and corporates will have more cash flow to sustain their operations. The mode for the next two years will be sustainability and recovery as well as ensuring that the people and corporates have sufficient cash to do so is key to success.

Windfall tax

It is said that for every crisis, there will be the lucky few who will benefit and indeed it has been reported that there are a few sectors and companies in Malaysia that have by chance ‘benefited’ from COVID-19 such as those in healthcare, manufacturing of latex gloves and personal protective equipment (PPE). In fact, it was just reported that some of the owners of these companies have become billionaires overnight.

To offset the loss of revenue from granting of tax exemptions, the government could implement a “windfall tax” for the next two years on companies and sectors that somehow ‘benefited’ from COVID-19. This COVID-19 windfall tax would be similar to the windfall tax that was imposed on CPO produces in the past when the price of CPO was very high due to the high price of crude oil. The monies from the COVID-19 windfall tax could help to offset the loss of revenue from granting the personal and corporate income tax exemption. ‘Prosper Thy Neighbour’ policy is most apt in the COVID aid.

Digital tax

The government must also push ahead with the implementation and execution of the Digital Tax as more and more businesses move to online strategy to cut cost and also due to COVID-19.

Technology giants have been known to use various innovate methods as they move their goods and services worldwide in order to avoid paying tax. The government must ensure that all providers of online goods and services that are used by consumers in Malaysia pay the required taxes so that our government does not lose out on much-needed revenue during these challenging times.

Banks had given a six-month loan moratorium with a possible three-month extension to their borrowers to help ease the burden of COVID-19 and we would urge the government to also show some compassion to our people and our companies across the board to ease their suffering by granting a temporary tax (income) holiday.

-- BERNAMA

Datuk Chang Kim Loong is the honorary secretary-general of the National House Buyers Association (HBA) (www.hba.org.my), a non-governmental and not-for-profit organisation manned wholly by volunteers.