WITH an allocation of RM322.5 bil, Budget 2021 is the largest one in Malaysian history, without any introduction of new taxes being proposed or any increase of existing taxes.
According to Ernst & Young Advisory Services Sdn Bhd (EY), it is a fit-for-purpose Budget that meets the immediate needs of the country to encourage recovery, growth and investment.
“It is now key to monitor and measure the implementation of the Budget closely against the desired objectives and also consider how our neighbours in the region are reacting, especially in terms of incentive offerings,” said EY Asean and Malaysian tax leader Amarjeet Singh.
“The COVID-19 pandemic has created significant uncertainties and economic conditions may change very rapidly, depending on the continued impact of the virus and the length of time it takes to develop a vaccine. As such, the Government needs to be agile and prepared to revisit and supplement the Budget measures as and when necessary,” he added.
Amarjeet noted that the measures announced in Budget 2021 continues to address the immediate needs of the most vulnerable like the B40 group.
The Government expects the economy to grow by between 6.5% and 7.5% in 2021, representing a significant improvement from the projected contraction of 4.5% in 2020.
To spur this growth, the Government has proposed various new and enhanced incentives designed to make Malaysia more attractive to foreign investors.
Additionally, the PENJANA proposal of a preferential tax rate of 0% to 10% for selected manufacturers has also been extended to 2022 and the scope has been expanded to cover selected services, particularly high technology, research and development and medical-related services.
“These proposals, combined with the proposed relaxation to the licensed manufacturing warehouse and free zone regimes, will certainly enhance Malaysia’s attractiveness, particularly as a supply chain hub,” he added. “The building of a strong infrastructure network, including an upgrade of broadband infrastructure, is also noteworthy.”
With such huge measures proposed, Malaysian Institute of Accountants (MIA) president Veerinderjeet Singh calls for good governance and proper monitoring in order to prevent any leakages and mismanagement.
“Considering that this is the largest Budget in Malaysia’s history, MIA hopes that there will be an emphasis on budgetary governance to ensure that the spending is prudent, without wastage and achieves the desired outcomes,” he said.
“We must monitor the projects well and ensure that the outcomes are in line with the desired targets, especially long-term reforms for sustainability as envisioned in the Budget,” he added, being one who proposed for the Government to issue ‘an annual report card on how the money is spent’.
Meanwhile, PwC Malaysia tax leader Jagdev Singh acknowledged how Budget 2021 takes a scalpel-like approach in targeting specific areas that the Government would like to promote investments in.
“I applaud the Government’s announcement to expand the tax incentive for relocation to Malaysia, which grants a concessionary tax rate of between 0% to 10% for 10 years, to selected businesses in the service sector,” he said in a statement released yesterday.
“The expansion of this tax incentive to the services sector sends the right signal to the market that the services sector is also a key driver to Malaysia’s recovery as we strive to have an overall ecosystem that investors desire,” he added.
PwC also welcomes the Government’s announcement to extend tax incentives that are ending in 2020 for another two years until 2022, while they undertake a holistic review of the tax incentive framework in Malaysia.
“This will ensure that investors will not be disadvantaged by any gap in the tax incentive period,” he said.
However, Jagdev said there had been clamour from businesses for measures to alleviate the impact of the COVID-19 pandemic, such as reduction in corporate tax rates, review of the seven-year time limit to carry forward tax losses and re-introduction of tax loss carryback.
But in light of the fact that this is the largest budget ever announced by the Government and pressure on tax collection from a slower economy, the Government appears to have resisted the urge to tweak the tax legislation, but instead, challenge businesses to remain steadfast and pull through together.
“Perhaps it is best not to change too many things during such times of great uncertainty,” Jagdev opined. – Nov 7, 2020