Local tax amnesty to increase tax collection

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KUALA LUMPUR — Ahead of the Budget 2017 exercise, the Ministry of Finance is expected to focus on tax collections to boost government revenue after a drastic fall in the second quarter (2Q16).

One of the means to increase tax collection in Budget 2016 was a tax amnesty revision, which covered local tax defrauding activities.

With the fall in goods and services tax (GST) collection last year, the focus could be on enhancing the tax amnesty given to local defaulters.

“Malaysia has introduced tax amnesty in the past. It will definitely increase tax collection but it will not be possible to estimate the collection based on this exercise.

“In fact, it has a more profound reason why this has been introduced in Malaysia,” said legal expert Wong Mun Hoe.

The Ministry of Finance has announced during the Budget 2016 recalibration, a revised tax amnesty programme.

This was done in preparation for the implementation of automatic exchange of information (AEOI) agreements with the Organisation for Economic Co-operation and Development.

“Based on its ‘Status of Commitments’, Malaysia will implement the exchange of information with other jurisdictions, among others, for better tax administration in 2018.

“It is a global effort,” Wong said.

He said the the purpose of AEOI is “to ensure that taxpayers pay the right amount of tax to the right jurisdiction” — in other words, taxpayers will no longer able to “hide” their income in member states.

As such, taxpayers should relook at their tax health, he told Malay Mail.

Lower GST collection

The latest data from treasuries revealed that GST collection fell to its lowest level in 2Q16, down to RM7.1 billion from RM10.2 billion in 1Q16, making the total GST collection for the first half of the year (1H16) only at RM17.2 billion.

“The lower GST collection could be partly due to higher refunds, as such the target of RM39 billion collections for this year could prove to be difficult,” said analysts from MIDF Research.

Overall consumption tax fell by 27.7% year-on-year (y-o-y) in 2Q16, from RM10.8 billion in 2Q15 to RM7.8 billion in 2Q16.

Total government revenue was down by 9.8% y-o-y in 1H16.

Despite the rebound in oil price, petroleum corporate tax remained low, possibly due to pullbacks in investment activity, while corporate tax on petroleum companies fell to below RM1 billion, at RM916 million in 2Q16.

For 1H16, the overall petroleum corporate tax was at RM2.9 billion, slightly lower than MIDF’s forecast of RM3.4 billion.

“Moving forward, we are not expecting much improvement in petroleum corporate tax, though we opine that it should have hit the bottom for now,” said the analysts.

Third successive quarters in red

The latest data from treasuries also revealed a deficit of RM4.8b in the 2Q16, marking the third successive quarters in red. The last time such event occurred was in 1987, where central government deficits spanned for five consecutive quarters, beginning from the third quarter of 1986.

Gross development expenditure surged by 31%, from RM15.3 billion in 1H15 to RM20.1 billion in 1H16, mostly due to the payments made on various projects under the 11th Malaysian Plan.

“Due to the high increase of development expenditure in 1H16, we are expecting that the number would be lower in 2H16, hence capping the fiscal deficit for 2H16,” said MIDF.

The research house said they are maintaining their expectation that the government will be able to maintain the 3.1% deficit target.

“We are optimistic that the government could achieve its target of 3.1% deficit to GDP ratio. With all the measures taken by the government so far to rein down its expenditures and the prioritisation of development projects, we believe the fiscal target is achievable.

“However, there is admittedly downside risks with global trade and the global economy remains weak, which presents strong headwinds to the Malaysian economy,” MIDF said.

Tax amnesty versus capital flight

The idea of a tax amnesty for funds kept abroad by tax dodgers were floated last month, based on Indonesia’s adoption of such a programme for its citizens suspected of keeping money outside of the country’s jurisdiction.

“Malaysia may benefit from such (an amnesty) as incomes that have been kept in other jurisdictions, in the form of investments, could now flow back to the country.

“While Malaysia has tax amnesty regulations, it does not cover funds abroad,” said Wong.

He said if the purpose of having a tax amnesty is to combat money laundering activities, Malaysia have a different set of law for this — the “Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001” — which prohibits all money laundering activities.

“And it makes it legally not possible to avail tax amnesty for money launderers,” Wong said.