The much-speculated taxes on capital gains and inheritance will not be introduced in Budget 2019.
Sources said both capital gains tax (CGT) and inheritance tax may only be introduced over the next few years if found feasible..
With only less than three weeks before the national budget is unveiled, the source also said that the additional tax measures to be announced would likely focus on the digital economy and tax incentives.
“The study on both CGT and inheritance tax need more time to be completed to assess the potential implications on the economy. It is not possible to decide on these taxes before the tabling of the upcoming budget.
“While the government is looking at raising more revenue to cover its income shortfall post-abolishing the Goods and Services Tax, the introduction of new taxes should not be rushed. I think the government understands this as well,” the sources said.
Towards this end, the government had set up a Tax Reform Committee on Sept 12 to look at the current tax structure and how to broaden tax base.
On the potential digital tax to be introduced by the government, the source said it would not be an entirely new tax.
Instead, it will likely be an extension of the existing Sales and Service Tax (SST) on online businesses, particularly on foreign digital service content providers.
“For now at least in Budget 2019, there will be no dramatic introduction on the taxation of the digital economy.
“Maybe in the next few years, the government will look at imposing tax on the income of online players if it is feasible. The process may be more complex.
“It makes sense to tax these businesses similar to the traditional brick-and-mortar ones and it is only fair to do so,” said the sources.
The Institute for Democracy and Economic Affairs (Ideas) has previously said that the introduction of a digital tax could increase prices for consumers and businesses, particularly for new start-ups and small and medium enterprises.
The think-tank said an “indirect digital tax” – applying SST to digital purchases from abroad – is less controversial than a new “direct tax” and many countries have already taken this approach.
“Doing so in Malaysia would also level the playing field between foreign and Malaysian companies, as local digital firms are already subject to SST. It would, however, still increase the cost of digital goods and services in Malaysia and drive up prices,” it said in an earlier report.
The source said that the Tax Reform Committee is also currently reviewing all the existing tax incentives in Malaysia.
He pointed out that any changes to the tax incentive structure will be gradual and progressive over the next few years.
“Certain types of tax incentives that are no longer needed or are no longer effective should be abolished. Instead, the committee is looking at recommending new tax incentives that can stimulate private sector activities.
“The best way to do this is to introduce tax incentives for new and innovative businesses of the future. The idea is to focus on the new sectors that the government would want to encourage,” he said.
The government’s plan to introduce new taxes in order to pare down the national debt of RM1 trillion became the talking point after Prime Minister Tun Dr Mahathir Mohamad, Finance Minister Lim Guan Eng and Bank Negara governor Datuk Nor Shamsiah Mohd Yunus all spoke about it during the Malaysia: A New Dawn conference on Oct 9.
Incidentally, Bursa Malaysia saw a bloodbath the next day, with the FBM KLCI shedding 39 points, falling the most in nearly five months.
While there has been no indication from the government, the market fears the implementation of the CGT – a tax usually imposed on gains made from the stock market.
Former prime minister Datuk Seri Najib Tun Razak has also criticised the CGT, warning about investors exodus if a tax is imposed on shares trading.
Former Inland Revenue Board director-general Tan Sri Hasmah Abdullah has been appointed as the chairperson of the Tax Reform Committee. The committee is joined by finance and tax experts, namely Dr Verinderjeet Singh, Datuk Chua Tia Guan and Amardeep Singh. Tax Department secretary Datuk Khodijah Abdullah, Tax Department deputy secretary Mohd Sakeri Abdul Kadir and Fiscal and Economic Department deputy secretary Mohd Hassan Ahmad represent the Finance Ministry.
- The Star