Whether it is possible for Malaysia to lower its corporate tax rate 2020 during the prevailing economic situation or it should rely on its incentive-based strategy. The answer to this question isn’t that easy, yet we will try to discuss all the aspects that are bound to play an effective role.
The prevailing tax base is too narrow for the Malaysian government, which limits the revenue generation to its minimum. Furthermore, the ever-constricting tax base has resulted in lowering the taxable percentage, especially when compared to GDP.
Another aspect that might cause trouble for Malaysia is the declining trend of corporate tax rates around the globe. The corporate tax rate 2020 charged by Malaysia is 24%, which is relatively higher than other countries. However, when it comes to the effective tax rate, the numbers are on the lower side. Also, the absence of a wide range of other taxes restrains the tax collection.
So, in these circumstances, whether it would be a viable option for Malaysia to reduce or revamp its corporate taxes. Here, we are going to discuss this matter comprehensively.
The Malaysian government is skeptical regarding this decision. A higher corporate tax rate of 24% appears to be more suitable for a small tax net, yet it might not prove beneficial for improving the Foreign Direct Investment (FDI). This is so, as lower corporate taxes drive more investors, which eventually increases tax collection.
Apparently, it might not be possible for Malaysia to lower its corporate tax rate until a sustainable growth trajectory of the economy is achieved. Meanwhile, it would be a promising strategy to revise the corporate income tax rate. This might help to prevent existing companies from leaving the country in search of lower tax domains.
At present, the corporate income tax rate charged by Singapore is 17%. Similarly, other countries like Thailand, Vietnam, and Cambodia stand at 20%. Hence, no doubt, the pressure is on Malaysia to lower the corporate tax rate 2020. (If you want to know more about Corporate Tax Malaysia, you can check out this blog post on “Corporate Tax Malaysia: All you need to know”)
Malaysia can still survive the prevailing economic stress, as it offers attractive tax incentive schemes to foreign investors. Moreover, incentives mentioned in Budget 2021 and Penjana stimulus package are going to work well if the country revamps the corporate income tax rate.
It would be appropriate to make the corporate tax rate more competitive, as the country can’t just rely on incentives to grab the attention of foreign investors. Besides, we can’t undermine the domestic investments, which also demands more appealing economic conditions.
Hence, now it’s time to minimize the dependency on incentives and rely on a competitive corporate tax rate. This is what most of the regional countries are doing for the time being. In other words, this is the new norm in our region. Most countries are settling for a 20% corporate tax rate 2020 or announcing such moves that would curtail this tax to 20% during the next fiscal year.
Furthermore, taking strict actions to tackle the black economy is what the Malaysian government should think about seriously. The reason being is the bleeding of tax revenue, which turns out to be a considerable loss when seen in a broader perspective. Through the right policies and stringent action, it would be possible to plug such tax leaks.
This might ensure that every business is charged with the right amount of taxes. These taxes should be collected from all those who fall under the tax circle. As a result, improvement in revenue generation through tax collection won’t be that hard as it appears now.
To conclude, just lowering the corporate tax rate 2020 won’t do the trick. Besides, the Malaysian government must devise a multi-pronged strategy. This involves enhancing tax collection, increasing the tax base, revising tax rates, and working on some other viable strategies.
YH Tan & Associates can help you by providing various taxation services in Malaysia including corporate tax planning as well as other corporate tax compliance services.