IDEAS: Income tax holiday better than GST exemption

Such an exemption will also result in an unfair competitive advantage among industry players, says acting CEO


Income tax holiday is a more plausible incentive that could accommodate any company which is involved in mega infrastructure projects in the country instead of an outright tax exemption that might give “bad signals” among the people.

The Institute for Democracy and Economic Affairs (IDEAS) acting CEO and research director Ali Salman said such an exemption will also result in an unfair competitive advantage among industry players.

Commenting on the Royal Malaysian Customs Department’s decision to grant Goods and Services Tax (GST) exemption to the East Coast Rail Link (ECRL) project, which is being developed by China Communications Construction Sdn Bhd (CCCSB), Ali said the move might prompt others to request for the same treatment.

“If one company gets an exemption, then other companies will also seek for tax exemptions, especially the GST.

“Maybe the government can consider giving income tax holidays instead, since the government has done that in the past,” Ali told reporters at the Seminar on Intellectual Property Rights in the Asean Economic Community — Challenges and Potentials by IDEAS in Kuala Lumpur yesterday.

Ali said the government had, in the past, given around five to 10 years of income tax relief to foreign companies investing in Malaysia.

The Customs, in a statement on Monday, said the GST relief for the ECRL project is aimed at reducing cost in implementing a project that involves the public’s interest.

Customs DG Datuk Seri Subromaniam Tholasy said there is a mechanism in the country’s GST to reduce the impact on targeted groups.

“The department will consider, from time to time, applications for relief for eligible companies, which have applied.

“The ECRL is a government-to-government project. In general, the GST relief granted to CCCSB is to ensure the strategic ECRL project can be implemented successfully, and on the whole, benefit the people,” Subromaniam said.

China’s state-owned China Communications Construction Co Ltd (CCCC), which acts as the engineering, procurement, construction and commissioning contractor for the 688km railway, is expected to begin the tender process for its civil packages this month.

CCCC is also expected to abide by the mandate of awarding 30% of the civil works to local firms and thus far, has engaged eight of its subsidiaries under the advanced work packages.

Ali said it is important to look at the benefits Malaysia’s economy will draw from China’s investment.

“We need to see whether we will have more jobs created from the investment, or more small and medium enterprises being developed or not.

“But the China investor came in with its own service contractors and labour, and the participation of our local labour is low. That is a cause for concern and we should definitely have the rights to review all these contracts,” Ali added.