KUALA LUMPUR, Oct 30 — Deloitte Malaysia expects some bold measures such as easing of tax payments and more attractive incentives to support businesses in their digital transformation efforts to be taken by the government in Budget 2021, in reviving the economy amid Covid-19 pandemic.
Deloitte Malaysia tax leader Sim Kwang Gek said Bank Negara Malaysia is projecting a full-year contraction of 3.5 per cent to 5.5 per cent before a rebound of 5.5 per cent to 8.0 per cent growth next year, while the fiscal deficit for this year is expected to go up to 6.0 per cent.
Against this backdrop, she said Budget 2021 is expected to focus on formulating policies to address the challenges from the Covid-19 pandemic and it will also need to consider medium and long-term strategies to put Malaysia on a strong footing to seize opportunities from this crisis.
Sim said Covid-19 has accelerated the need to embrace the digital transformation.
“Investment in technology such as digital and mobile payments, cloud computing, and robotics is now essential for businesses to adapt to the new normal.
“I applaud the government’s initiative in supporting small and medium enterprises (SMEs) embrace the advent of the Industrial Revolution 4.0 by providing grants of up to RM5,000 for these companies to invest in the digitalisation of their daily operations,” she told Bernama on the firm’s 2021 Budget views.
An allocation of RM500 million has been provided for this initiative and under the Penjana stimulus package, an Accelerated Capital Allowance (ACA) will be given for qualifying capital expenditure incurred on machinery and equipment, including information and communication technology (ICT) equipment to incentivise businesses to undertake businesses in year 2020.
The ACA provides a 60 per cent claim of capital allowance on qualifying capital expenditure incurred in 2020 and the balance in subsequent years. This may not be attractive enough to spur digital investments as the ACA only provides for a higher capital allowance claim in the first year but the overall total capital allowance claim is equivalent to the amount spent.
“To support businesses in their digital transformation efforts, the ACA can be enhanced by increasing the capital allowance claim to two-times of the capital expenditure incurred within a certain period of time and double tax deduction on professional fees incurred in implementing such projects capped to a certain limit,” suggest Sim.
Commenting on group relief, which allows a company to surrender a maximum of 70 per cent of its current year tax losses to be set off against the total income of one or more related companies within the same group, Sim said SMEs are typically excluded from this incentive because of the requirement to have paid up ordinary share capital of more than RM2.5 million.
“In Budget 2019, the group relief provisions were further tightened to only allow a company to surrender its losses after 12 months from the date of commencement of operations for the first three consecutive years.
“Companies that have been in operations for more than three years would not be eligible for this incentive. To ease the overall tax payable for groups of companies, I would propose that this provision be relaxed to allow all companies (including SMEs) to access the group relief facility and removal of the 70 per cent restriction,” she said.
Since the onset of Covid-19, the Inland Revenue Board (IRB) has introduced various measures to ease the burden of tax payments under the Prihatin and Penjana packages.
Measures such as deferment of tax instalment payments, revision of tax estimates in the third instalment, and extended deadline for tax filing are most welcome in current times, she said.
However, to alleviate the cash flow constraints faced by businesses, consideration can be made to allow for the balance of tax payable following the filing of the company’s tax return to be made via instalments without any imposition of late payment penalties. Based on current provisions of the Income Tax Act, 1967, late payments are subject to a penalty of up to 15.5 per cent of the unpaid tax.
To ease administrative work, she said an automatic approval may be given for up to six months instalments without any imposition of late payment penalties.
It was reported that the IRB collected approximately RM7.88 billion through its Special Voluntary Disclosure Programme (SVDP) between November 2018 and September 2019. This was secured from 286,428 contributors, including 11,176 new tax payers and had pushed total tax collection in 2019 to RM145.11 billion, 5.89 per cent higher than the total collected in 2018.
Currently, she said penalties ranging from 10 per cent to 35 per cent of the tax undercharged is imposed on voluntary disclosures of understatement of income by taxpayers, depending on how fast the voluntary disclosure is made. Under the SVDP, taxpayers were offered a penalty rate of 15 per cent.
“In Singapore, zero penalties are offered to encourage voluntary disclosures made within one year from the statutory filing deadline, while a 5.0 per cent penalty is imposed if such disclosures are made after the said grace period.
“In light of the current crisis, the IRB has revised downwards its tax collection for 2020. As evidenced from the SVDP, voluntary disclosures can be an effective mechanism to enhance tax collections and therefore, it may be timely to incentivise voluntary disclosures by reducing the penalties to 5.0 per cent and no penalties if the voluntary disclosure is because of genuine errors or differences in technical interpretations made by taxpayers,” she said.
Sim said the current third wave of Covid-19 sweeping the country has caused certain parts of the country to be put under some form of restrictions of movement.
Business establishments such as shopping malls and offices that recorded positive cases are forced to close for a certain period of time.
The Penjana stimulus package has provided a tax deduction for landlords who reduce or waive at least 30 per cent of gross rental from April to September 2020 on premises rented to tenants who are SMEs and the premises are used for the purpose of their business.
“As rental costs form a significant portion of the operating expenses of most businesses, I would propose for this incentive to be extended for another six months as this will encourage landlords to continue giving rental reductions and provide businesses some time to pick up,” Sim said.
In addition, she said this special tax deduction should also be made available for landlords who provide rental reductions to non-SMEs, as these businesses are equally affected by Covid-19.
“The need to revitalise and protect businesses, ensuring livelihood of employees, and caring for the welfare of the rakyat signal an expansionary budget is on the cards. How much is enough to pump-prime the economy is anyone’s guess as the world scrambles to find a cure for Covid-19.
“Will we be out of the woods? Only time will tell but with effective policies that put our nation’s interests at heart and collective efforts from all, I am confident Malaysia will come out stronger than ever,” she said. — Bernama