Budget 2017 – tax incentives for businesses seen as 'limited'

Posted on 24 October 2016

Source: The Sun Daily

Budget 2017 is perceived to have little tax incentives for the business community at large, while benefits given to small and medium enterprises (SMEs) could have had more bite, say industry observers.

“From a business perspective, not much incentives are given to companies and we had hoped for an extension of reinvestment allowance,” KPMG Tax Services Sdn Bhd executive director Soh Lian Seng told SunBiz.

But he said from a tax perspective, the significant gain from the budget could go to the SMEs, given that many initiatives have been allocated for this group, from the 2017 Startup & SME Promotion Year, the implementation of programmes under SME Master Plan, to the extension of guarantee under the various schemes of Syarikat Jaminan Pembiayaan Perniagaan.

He said the reduction in tax rate between 1 and 4 percentage points for companies with significant increase in taxable income for years of assessment 2017 and 2018 is a good initiative but noted that the scheme is only for two years.

“Looking at the current economic situation, how many companies and SMEs would be able to generate such revenue? And the more money your make, you do enjoy a saving. But to say a bigger savings, I beg to differ,” said Soh.

He lauded the establishment of the Collection Intelligence Arrangement under the Ministry of Finance, saying this will enhance enforcement activities and provide efficiency in tax collection.

Meanwhile, Crowe Horwath KL Tax Sdn Bhd managing director S.M. Thanneermalai said the reduced tax rate from 19% to 18% for SMEs with taxable income up to first RM500,000 is quite a sum for SMEs and this will help them.

He agreed that the reduction in tax rate between 1 and 4 percentage points for companies with significant increase in taxable income is a small incentive to encourage SMEs but pointed out that the rate has not significantly dropped.

“It’s small and it’s not going to make a huge difference. What would make a difference is a bigger tax reduction, that is in line with other countries such as Thailand (20%) and Singapore (17%),” Thanneermalai said.

PricewatershouseCoopers Malaysia tax leader Jagdev Singh said rewarding successful SMEs through lower tax rates will only spur them to reinvest further in the business, and potentially expand beyond our shores.

“Have we done enough to encourage startups and SMEs? Probably not. What would have been good is more radical measures to promote innovation and R&D. A lot of startup companies will not be profitable. A forward-thinking idea would be to give cash rebates for innovation and R&D,” said Jagdev.

He said the introduction of lifestyle tax relief is relevant in current times. Looking at this broadly, many new categories have been added, but the actual increase in tax relief is marginal. It would have been nice to see a higher limit of RM5,000.

Federation of Malaysian Manufacturers (FMM) president Tan Sri Saw Choo Boon said the reduction in income taxes for companies would motivate businesses to increase their revenue.

“However, FMM hopes to see the extension of this incentive to the overall chargeable income in view of the competition from other regional economies that have taken steps to reduce their corporate tax rates aggressively,” said Saw.

“In addition, we had looked forward to the further extension of reinvestment allowances and incentives to promote innovation, R&D, productivity and Accelerated Capital Allowances for automation. Given the importance of water supply to support manufacturing activities, the development projects, including the Water Supply Fund should also cover supply to industry,” said Saw.

He welcomed the numerous programmes and incentives focused on SME development, particularly the export promotion funds, insurance credit facilities, the 2% rebates on interest rates charged to SME borrowers, the reduced corporate tax rate from 19% to 18%, extension of incentives for vendor development and additional schemes to support start-ups, which are expected to boost the further development of SMEs. 

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