IHS: Income Tax Must Be Lowered On Higher GST

Malaysia has to lower cor porate a nd persona l income taxes as the expansion of the local economy will deliver higher Goods and Services Tax (GST), says IHS Inc senior director and Asia-Pacific chief economist Rajiv Biswas.

He said the local economy is expected to hit US$20 billion in 2020 from US$290 billion presently, allowing the government to reap “a reasonable growth” in GST collection.

“In the long term, GST will be an efficient source of revenue for the government. The expected growth in the economy will expand GST’s revenues. And the increase in GST revenue should be parallel with the reduction in corporate and income taxes,” he told The Malaysian Reserve during the Malaysia Trade and Export Finance Conference 2015 in Kuala Lumpur yesterday.

Biswas said the government’s decision to increase the income tax rates of certain income brackets was the only drawback announced in Budget 2016.

“Although these tax rates only apply to certain brackets of income, the positive of the implementation of GST is to reduce income tax which it did not,” Biswas said.

The threshold for the top income tax rate has been raised to RM600,000 and above, from RM400,000 and above previously, and the maximum tax rate which was reduced last year from 26% to 25%, has been increased to 28%.

For those earning chargeable income of RM600,000 to RM1 million, their tax rate has been increased to 26% from 25%, while those with income of more than RM1 million will be taxed at 28%. Meanwhile, corporate tax has been trimmed to 24% from 25% for both resident and non-resident companies.

This comes as no surprise as Prime Minister Datuk Seri Mohd Najib Razak had announced the one percentage point reduction at last year’s budget tabling.

However, Biswas said the absence of any significant corporate tax reduction was due to the drop in oil price.

“When the oil prices increase, the government will have to be careful in balancing its spending with tax cuts. To remain competitive, tax cuts have to take place,” he said.

IHS expects the oil price to range between US$55 (RM234.30) to US$60 per barrel next year while the country’s economy is expected to register a 4.8% growth.

The governments expect growth to be between 4% and 5% next year.