Written by Tai Lai Kok, Head of Tax at KPMG in Malaysia

The first budget under the new Pakatan Harapan Government was targeted on three main areas: institutional reforms, socio-economic well-being and fostering entrepreneurial economy. It is pleasing to see the Government commit, usher and inculcate fundamental fiscal discipline, while striking a balance between the Government’s efforts to fix our fiscal finances and improve the well-being of the rakyat.

Being saddled and grappled with the financial state of affairs has not deterred the Government in providing a comprehensive budget that meets the needs of the rakyat. The announcement also focused on careful fiscal policies and tax reform measures which will be seen by many as bold and progressive for the betterment of the nation.

Digital tax is one such move by the Government bearing in mind the complexities that will be faced by the Authorities on processes such as registration or monitoring of these online services. Enforcing the law will also prove to be a challenge as these service providers are located in foreign jurisdictions. These service providers will be required to register, collect and remit service taxes to the Royal Malaysian Customs. But, what will the repercussion be in the event that the foreign service providers do not comply with the law?

With RM35.4 billion in GST and income tax refunds owed by the Government, attention is also drawn towards the Government’s initiative of the Special Voluntary Disclosure Programme which is clearly intended to be a win-win situation by encouraging taxpayers to declare unreported income and enjoy reduced penalty rates of 10% or 15%. This move by the Government to introduce this “amnesty” program would need to be looked into most carefully to ensure that as many taxpayers as possible will be encouraged to participate in the program to make it a success. In this context, taxpayers may require clear assurance from the Government in relation to the “amnesty” that will be provided to them.

On a nationwide impact, the imposition of excise duty on sugar sweetened beverages should be viewed as a benevolent effort by the Government as it promotes a healthier lifestyle and should be relatively easier to implement as only a small number of affected manufacturers would be required to comply. Another change which will be affecting a small segment of population will be the increase in casino duty and license fees which would make it most costly for public to engage in gaming activities.

Through the Government’s commitment to the Organisation for Economic Co-operation and Development (“OECD”) in connection with the implementation of the Base Erosion and Profit Shifting (“BEPS”) Action Plans, tax reliefs and incentives would be an area that is critical to our future. In line with the Forum on Harmful Tax Practices (“FHTP”)’s requirement on ring fencing (tax treatments that differ for segments of taxpayers), the suggested easing of restrictions on Labuan – such as allowing trade in Malaysian Ringgit and transaction with Malaysian residents – may open up opportunities that both Malaysian residents and non-residents can benefit.

Note however that Labuan entities would have significant substance requirements in the future in order to continue enjoying the tax benefits of the regime.

Beyond a doubt, it will be exciting years ahead of us. With these tax reforms and changes announced in the 2019 National Budget, our collective efforts shall drive us towards the Government’s aspiration for a Resurgent Malaysia.

 

About KPMG

KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 155 countries and have 200,000 people working in member firms around the world. KPMG first established a presence in Malaysia in 1928. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

KPMG Tax Services Sdn. Bhd. Is a company incorporated under Malaysian law and a member firm of the KPMG network of independent member firms affiliated with KPMG International.