ERNST & Young (EY) Tax leaders are expecting Budget 2021 to continue rolling out stimulus measures that are focused on key issues of saving lives and livelihoods in the short term, in order to position the country towards economic recovery in the medium and longer term.
“It will be a tough Budget, as it has to balance taking care of the rakyat, especially the vulnerable, creating and protecting jobs and livelihoods, paving the way for sustainable growth and positioning us to be nimble to seize and realise opportunities during the recovery phase,” EY said.
“At the same time, we are looking at a 5.8% to 6% budget deficit and debt levels above the statutory limit of 60%,” it added. “Hence, we also expect some immediate measures to increase the tax revenue of the country, including changes to existing tax provisions to broaden the tax base and tighten gaps.”
In the meantime, the company hopes that Malaysia will continue to remain as an attractive country for investors. In light of that, EY also expect some measures that include fiscal and non-fiscal incentives to help attract targeted foreign direct investments (FDI).
Looking ahead beyond the COVID-19 and Budget 2021, EY believes that Malaysia needs a comprehensive reform of its tax framework. It needs to be one that is balanced in achieving revenue growth whilst encouraging economic growth.
“There is no short cut in tax policy formulation. In isolation, changes introduced in an annual national Budget will not be comprehensive enough. The Government needs to look at these together with the country’s economic agenda and its focus on the engines of growth, in order to formulate holistic tax reform based on the above overarching goals,” it said.
EY also believes that the reintroduction of the goods and services tax (GST) needs careful consideration. Instead, the government may further widen the scope of the sales and services tax (SST) by maybe introducing new types or categories of taxable goods and services.
This will enable higher tax collection as government revenue without the need to implement a different indirect tax regime.
Apart from that, EY hopes that the government will consider providing temporary tax breaks to individual taxpayers who have suffered salary reductions or job losses.
“The government should also consider broadening and reducing the number of income tax bands,” it suggested.
As for the real estate sector, EY hopes the government will extend the period of stamp duty exemption on purchases of residential property, reintroducing the personal relief on housing loan interest and provide double tax deductions on housing loan interest subsidised by employers.
“To further ease the overhang of properties and assist troubled property development companies, the Government may also consider tax reliefs for companies to rationalize through corporate mergers or demergers,” it said. – Nov 6, 2020