Be prepared for Europe crisis fallout

KUALA LUMPUR: The government is expected to undertake a comprehensive review of the country's tax incentive regime to raise revenue but is unlikely to change the corporate and individual tax rates, according to tax experts and economists.

"Revamping our tax incentive regime by curtailing incentives given to lower value-added activities would generate additional tax revenue, while promoting high value-added activities that would create profound economic spin-offs which eventually results in higher tax revenue for the government," said Deloitte KassimChan Tax Services Sdn Bhd managing director for tax, Yee Wing Peng.

Such a strategy will also channel resources to high value activities that can help Malaysia move towards a high-income and knowledge-based economy by year 2020.

At the same time, Yee expects certain incentives not to be withdrawn but the tax relief granted through those incentives may be restricted.

Deloitte said it would not be surprising if the real property gains tax (RPGT) is restored on a full fledged basis to tax gains from disposal of landed properties at rates ranging from 0 per cent to 30 per cent, depending on the length of the holding period.

"In addition, we expect non-tax routes such as the divestment of government assets to be employed to raise revenue. These assets could be shares and land," Yee said.

Deloitte expects the trend of listing or selling government assets to continue, following the listing of Petronas Chemical Group Bhd, Malaysia Marine and Heavy Engineering Holdings Bhd and MSM Malaysia Holding Bhd in these last two years years.

The government has recently identified 33 government linked companies (GLCs) for divestment.

The listing of a Felda subsidiary, MSM Holdings, engaged in the sugar industry, is an attractive way for the government to raise money without increasing taxes.

"The sale of such government assets not only raises revenue without increasing the tax burden but also stimulates the capital market," he said.

Ernst & Young's tax department senior partner, Lee Choong San, said in the absence of the Goods and Services Tax it is likely that the government may extend the service tax regime to one or two new services in Budget 2012.

However, he said, the potential service tax must not burden the lower income group and the tax collected must significantly exceed the cost of implementation.

Lee does not anticipate any increases in tax for the tobacco and alcohol industry as Budget 2012 is expected to be an election- friendly budget.

Malaysian Rating Corp Bhd (MARC) opined that improved tax administration such as e-filing will also help to increase revenue collection for the government.

Its chief economist, Nor Zahidi Alias, said in the first half of 2011, total tax collection rose 26.4 per cent compared with the same period last year.

"We expect the government revenue to continue expanding, in line with steady economic growth in 2012 as the global economy recovers," he said.

He also pointed out that income from oil-related revenue, which accounted for more than 40 per cent of the total government revenue, is expected to remain steady next year with oil prices hovering around US$100 (RM319) a barrel in 2012, according to the latest IMF forecast.