Tax Measures to Boost Revenue?

Budget 2025 will likely be both business and people friendly. Malaysia needs to improve the low tax revenue to gross domestic product ratio of just over 12% to at least 15%. Businesses and households will need time to adjust to a possible higher tax regime and the eventual re-introduction of the Goods and Services Tax (GST) by perhaps 2027.

In the immediate term, e-invoicing is expected to be a strong revenue contributor as the second and third phases of implementation are expected from Jan 1 and July 1, 2025, respectively. Meanwhile, the Global Minimum Tax will ensure Malaysia collects a fair share of taxes, despite the many tax breaks for multinational corporations.

The implementation of High-Value Goods Tax announced in Budget 2024 has been delayed but is expected to be fine-tuned in the upcoming budget.

 

 

Source: https://www.financialexpress.com

 

The Prime Minister has also hinted that there will be “no new taxes” given the introduction of e-invoicing. However, the tax net under the current Sales and Services Tax could be widened to more goods and services.

Malaysia, which has already floated diesel to the current market price, may consider eliminating the subsidy for RON95. In order to phase in the adjustment for consumers, the government could increase fuel prices by 20 sen per litre per quarter over the next year or extend the period until the global market price is reached.

Budget 2025 will also likely see the minimum wage of RM1,500 being raised to RM2,000 from Jan 1, 2025. This will be in line with the raise for civil servants. Although it is a 33% increase, it is still well below the 2022 Poverty Line Income of RM2,589. The higher wage structure is essential if Malaysia is serious about implementing wage reforms.

Personal relief should be raised by RM2,000 to RM11,000 while relief for Employees Provident Fund (EPF) contributions should be raised to RM6,000. Similarly, medical insurance should be raised to RM5,000 from RM3,000 presently.

Individual taxpayers have long complained about the narrow tax brackets. Although the current rates are progressive, an individual taxpayer could easily hit the 25% tax bracket if the chargeable income is more than RM100,000. One way is for the rates for richer taxpayers with chargeable income of RM400,000, RM600,000 and RM2mil be at 26% (unchanged), 30% (from 28%), and 35% (from 30%) respectively.

Budget 2025 should focus on boosting government revenue and judicial removal of subsidies and tax reliefs. The other is to stop “gross” leakages on contracts/procurements. That way we may have fiscal surplus sooner than we thought!

 

Reference:

Key tax measures to boost revenue, Pankaj C. Kumar, The Star/Insight, 28 September 2024