Taxes that will test Malaysia

New taxes are duties on sugary drinks, online services, as well as higher or lower levies on gaming, property and corporate incomes


It was an anti-climax to tax proponents. The government despite all the debt burdens and revenue constraints did not introduce a wide-ranging taxes. Putrajaya had opted to trim its borrowings by seeking subsidy cuts, channelling fund to the deserving and opting for other revenue sources.

The new taxes are duties on sugary drinks and online services, as well as higher or lower levies on areas including gaming, property and corporate incomes. The much-anticipated taxes on cigarette and liquor did not materialise. Corporate and personal taxes remain the same. But those in the gambling sector and sweet drink business now have to pay more for their services.

Axcelasia Inc non-executive chairman Dr Veerinderjeet Singh said the new tax measures would not greatly hurt consumers.

“The measures do not appear to be extremely substantial in impact. It’s bits and pieces of additional taxes. So, individually it may not bring in much revenue but when combined, it can be substantial.

“Hence, the impact on consumers is minimal. It’s more about revenue-raising measures mainly aimed at tiding the government over, while the Royal Malaysian Customs Department improves their collection process in order to collect more revenue from tax-payers,” he told The Malaysian Reserve (TMR).

Veerinderjeet said most of the taxes are within expectations, with the exception of some such as the passenger departure levy and the Real Property Gains Tax (RPGT), though the former is “quite reasonable”.

Thannees Tax Consulting Services Sdn Bhd MD Thanneermalai said the new measures will not hurt the economy in general as most of the changes are small, while the larger ones are more likely to hit the bigger players.

“The increase in taxes is relatively minor — it could have been more severe, but this won’t affect most of the population. The wealthy and the corporates will be hit, but this shouldn’t be a problem for them. It’s only fair that they share some of their earnings with the man on the street,” he told TMR.

Excise Duty on Sugary Drinks

An excise duty of 40 sen per litre will be imposed beginning April 1, 2019, on two categories of ready-to-drink beverages, namely those containing more than 5g of added sugar or other sweetening ingredients per 100ml, and fruit and vegetable juices containing sugar exceeding 12g per 100ml.

The sugar tax should come as no surprise, for the idea was flouted in recent weeks as a means of promoting healthy living.

“Every country has introduced it. So, it’s about time for us as we’re behind the curve on this,” said Thanneermalai, who is also the Malaysian Tax Research Foundation chairman.

While some of the cost will be passed down to consumers, it will have a greater impact on the major food and beverage (F&B) players.

“It’s more about finding money because those who want to drink sweet drinks will still drink them even at

higher prices. But it will be a means for tax revenue, so it makes sense for the government to tax the big F&B manufacturers,” Thanneermalai added.

Veerinderjeet said the excise duty on sugary drinks was more health-motivated as manufacturers would eventually lower the sugar content in their products and thus be exempted from the duty.

Foreign Online Service Providers to be Taxed

Beginning Jan 1, 2020, foreign service providers will also be required to register with the Customs, and will be charged related-service tax on online services imported by users.

These services include con- tent, music, videos or any digital advertisements, thus cover- ing services such as Spotify, Netflix and Steam.

“This tax initiative (on imported online services) will even out the competition between retail shops and online shops, especially online shops owned by foreign companies,” Finance Minister Lim Guan Eng said, while presenting the budget last Friday.

Imported services will also be subjected to service tax starting Jan 1, 2019, a move to ensure local service providers such as architecture, graphic design, IT (information technology) and engineering design services are protected against foreign competitors.

Online services tax is also in line with other countries, which has begun to tax foreign service providers.

“We do lose quite a lot by not taxing online providers, and these big boys are making huge amounts from providing content worldwide. Other countries are starting to do it too,” Thanneermalai said.

Higher Levies on Gaming, Property

Certain existing taxes will also be increased, such as those imposed on the gaming industry, which Lim said, have not been hiked since 2005.

Casino licences will be increased to RM150 million annually from RM120 million, while duties on casinos will be raised to 35% of gross income.

Machine dealer’s licences will be pushed up to RM50,000 per annum from RM10,000, while gaming machine duties will be hiked to 30% from 20% on gross collection.

“The increased fees on gaming could bring in possibly around RM500 million in additional revenue for the government each year,” Thanneermalai said.

However, Veerinderjeet said it is difficult to pinpoint an exact number, as statistics on the gaming industry’s profits are not disclosed, while the details of the implementation are also scarce.

Meanwhile, the RPGT will be increased to 10% from 5% previously for companies, non-citizens and non-permanent residence (PR) holders. For citizens and PR holders, the RPGT will be raised to 5% from zero previously.

Note that RPGT is exempted for land, low-cost houses, medium-cost houses and affordable houses priced below RM200,000.

Lower Taxes for SMEs

Companies with taxable income up to RM500,000 and small and medium enterprises (SMEs) with paid-up capital of less than RM2.5 million will pay a corporate income tax rate of 17%, reduced from 18% previously.

“The reduction in corporate income tax is very good to incentivise SMEs, as the sup- posed driver of the economy,” Veerinderjeet said.

Meanwhile, Thanneermalai said the lower corporate income tax could open up the doors for individuals to form more companies, so as to benefit from the lower company tax rate.

Tax Revenue Estimates

According to the Finance Ministry’s 2019 Fiscal Outlook and Federal Government Revenue Estimates report, Malaysia’s tax revenue is estimated to come in at RM176.2 billion in 2019 and RM174.7 billion in 2018.

Direct tax collection this year, which constitutes 76.7% of the tax revenue, is expected at RM133.47 billion, up 15% from RM116.02 billion in 2017. Direct tax collection for 2019 is estimated at RM135.07 billion.

The direct tax collection will be mainly underpinned by higher petroleum income tax collection and a modest consumption of crude oil prices, as well as higher companies income tax and individuals income tax.

However, indirect tax collection is anticipated to decline 33.1% to RM41.2 billion this year, following the zero-rating of the Goods and Services Tax (GST), a three-month tax holiday which resulted in a loss of RM21 billion in revenue, and the additional RM4 billion allocated for GST refunds.

The re-introduction of the Sales and Services Tax in September 2018 is expected to contribute RM4 billion. Overall, net consumption-based tax would stand at some RM23 billion, almost half of the initial estimate of RM44 billion.