What Can The Malaysian Citizen Expects from Budget 2011

15th October 2010 will the day our Prime Minister and Minister of Finance, YAB Dato Seri Najib Razak making his second budget speech, unveiling the Budget 2011. The allocation under Budget 2010 was RM191.5 billion of which 72.2% was operating expenses and the remaining were development expenditure. Budget 2011 is expected to have a higher allocation since the Government will need to provide some funding to kick start the initial implementation of the National Key Economic Areas (NKEA) and National Key Results Areas (NKRA )projects, which should support our country to achieve gross domestic growth (GDP) of 6% in 2011.

The forthcoming Budget is expected to be an exciting one full of challenges since it will thrust the Malaysian economy into a higher income economy in tandem with the recent launching of the Economic Transformation Programme (ETP). The ETP will be propelled by seven projects worth RM115 billion scheduled to start by year end. Although the NKEA projects will be spearheaded by the private sectors, nonetheless the Government need to fund the remaining 8% to facilitate private sectors investments. Further, our Government also need funds to address the persistent worry of continuous Budget deficit. The crux of attention will be how the Government going to seek higher revenue to finance its ambitious intentions to meet the goals?

Many Malaysian Citizen wonder if the once hyped Goods and Services Tax (GST) will make its way back into the 2011 budget speech once and for all since its disappearance after the first parliamentary reading of the bill in December 2009? Clearly, there are already some indicative signs of huge possibilities for this broad based consumption tax. For e.g. the Price Control and Anti-Profiteering Bill 2010 is being enacted recently to reform the law on price control and to make provisions relating to prohibition on profiteering. This will prevent the consumers from being potentially exploited by some unscrupulous businessmen arising from the imposition of GST. Another e.g. is that the official website of GST by the Royal Customs of Malaysia, www.gst.customs.gov.my is now readily made available to the public. Above all, by implementing GST, our Government will be able to raise additional RM1 billion in tax revenue annually. Unless the Government can conjure an alternative brilliant idea to generate more income, GST implementation appears to be the most affirmative step to be taken. Nevertheless, there some Malaysian Citizen who speculate that GST may not be rolled out again in the forthcoming Budget 2011 since it is a politically sensitive issue and need more time for feedback. Further, the implementation date for GST could be announced anytime, not necessarily in the budget.

Comes every Budget, most taxpayers, be they individuals, companies or unincorporated businesses will certainly have they wish lists too. Some professional bodies and trade associations have also submitted their memorandum for national budget consultation. There is no gag order on Malaysian Citizen as to what they wish for in the upcoming Budget 2011. To the contrary, the Malaysian Citizen were invited to voice their feedback and suggestions by our Prime Minister via his blog www.1malaysia.com.my.

Now, let us discuss what could possibly the individuals wish for in the forthcoming budget? First and foremost, a reduction in highest bracket personal tax rate from 26% to 25% for resident individuals to be in par with that of corporate tax seems logically practical. Similar tax rate should be accorded for non resident individuals too, hence their income tax rate should be at a flat rate of 25% instead of the prevailing 26%. The current insurance premium relief for education/medical benefits of an individual taxpayer (self/spouse/children) is RM3,000. It would be a welcoming factor if such relief can be increased to RM5,000 per taxpayer since education/medical costs have surged tremendously.

An offbeat request would be a tax rebate of RM10 per year of assessment for each taxpayer who uses e-filling since they help to save Government printing expenses and this will further encourage more electronic filing of tax returns in the future. Due to the current increase in crime rate and Government has given tax incentive to companies for enhancement of security control system such as installation of anti-theft alarm system, infra-red motion detection system, siren, access control system, closed circuit television, security camera etc in 2009 budget. It is proposed that the similar expenditure incurred by individual to safeguard his house and family should be given in the form of tax relief for deduction against his total income. Last but not least, the limit on deduction of approved charitable donations is to be increased from 7% to 10% of their aggregate income similar to that given to the corporate taxpayers!

As far as the companies and unincorporated taxpayers are concerned, they are also desirous of several proposals for the Budget 2011. For Small and Medium Enterprises (SMEs), most of them calls for the preferential tax rate of 20% be given a threshold of RM1.0 million instead of only RM500,000 , this would generate a tax savings of RM25,000 if their chargeable income is at least RM1.0 million and above. To encourage SMEs to compete globally, a double deduction should be given for “global R&D” revenue expenses incurred by `the SMEs .To reduce the costs of doing business, some businesses wish for Capital Allowances (CA) on motor vehicles should be claimable based on costs incurred with no restriction and the rate of the road tax for the company’s registered motor vehicle shall be the same as the rate of an individual. Some professional bodies have been annually asserted for the deductibility of professional tax fees even though they think that it is highly unlikely that the Government would agree with the proposal. To encourage green environment and promote green technology, private business buildings which use energy-efficient equipment should be allowed a 150% Qualifying Capital Expenditure (QCE). In addition, Reinvestment Allowance (RA) incentive is requested to be extended another 15 years beyond 2011 for those companies which have started to claim RA since 1997 (year of assessment 1998).

Currently, for any transaction which involves the transfer of shares, stamp duty is payable at 0.3% of the higher of market value of shares or consideration paid in a stock deal. Whereas for an asset transfer, stamp duty ranging from 1% to 3% is payable on the market value of properties transferred under the instrument. However relief from stamp duty is available If the acquisition of shares or assets is in connection with a scheme of reconstruction or amalgamation and the consideration comprises substantially in shares of the transferee company; or If the shares or assets are transferred between associated companies (i.e. there must be 90% direct or indirect relationship between the transferor/transferee).In addition, stamp duty exemption is given on an approved scheme of merger and acquisition undertaken by companies listed on Bursa Malaysia.

SMEs need to chart their growth for expansion for global competition by consolidating their resources. These would involve restructuring exercises, obtaining additional banking facilities, acquiring new plants and machineries, investing in properties and/or other companies etc. In this connection, the high costs of stamp duties involved where the relief conditions are not met can be a burden to the SMEs and hence detrimental to their growth and expansion. In order to encourage growth and expansion for the SMEs and hence capabilities to compete globally, some proposed that the Government to accord stamp duty exemption/relief to SMEs for its restructuring exercises, additional banking facilities, on new acquisition of plants & machineries, shares and assets with no conditions attached. This will certainly reduce the burdening costs of stamp duty in light of making SMEs more capable for expansion and global competition.

Generally, most Malaysian Citizen foresee an increase in sin tax since the Government did not do so in the last budget proposals, hence a revised higher excise duty of cigarettes, tobacco products and alcoholic beverages is expected to promote a healthier lifestyle for the Malaysian Citizen. So much so the above contains some predictions of what’s in the Budget 2011? But you will never know what surprises the Government have in mind until the reveal time. So, be prepared for the unexpected!

Article written by LLKG INTERNATIONAL, 1 October 2010