Cukai Makmur should be based on incremental profits, not firms’ size

The spirit of the prosperity tax is supposed to look at companies that have performed exceptionally well


THE one-off Cukai Makmur or prosperity tax should be imposed not according to the size of organisations but based on the incremental profits over the last two years, according to a tax expert.

Deloitte Asia Pacific tax partner Mark Chan stressed that if the government imposes the tax based on the RM100 million chargeable income, they are really just taxing based on size and not performance.

He said the spirit of the prosperity tax is supposed to look at companies that have performed exceptionally well. Malaysia as a country does not have a concept of group taxation and the determination of the RM100 million in the prosperity tax will be on an individual company basis.

“Technically, if you look at breaking up the operations into multiple subsidiaries, you could mitigate the impact of prosperity tax but I’m not sure if that is realistic in the short term because this prosperity tax is only for one year.

“If that is the part of the larger plan to streamline the business, then it makes sense to bring forward the plan to the timeline, but if it’s driven purely by tax, I wouldn’t do that. It is aggressive tax planning,” he said during the Roundtable Discussion on Malaysia Budget 2022 at virtual Invest Malaysia 2021 Series 3.

Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz, when tabling Budget 2022 on Oct 29, announced a one-off Cukai Makmur on companies that make more than RM100 million in profit for the year of assessment 2022.

Cukai Makmur is for companies with taxable income of up to the first RM100 million to be subject to income tax at the rate of 24% and the remaining taxable income will be subject to income tax at the rate of 33% for the year of assessment 2022.

The government is expected to rake in RM9 billion in revenue from the tax. However, due to the announcement, The Edge reported that a cumulative RM33.8 billion of value was wiped off the market capitalisation of stocks on Bursa Malaysia last week.

Chan welcomed the implementation of the carbon tax which he believes is in line with the country’s sustainability goals.

“I acknowledge that carbon tax is a lot more complicated than the prosperity tax, but in the longer term, maybe that is something we should look at. We can no longer afford to look at sustainability, environmental agenda as a piecemeal basis.

“As a country, we must have a tax system that is holistic and we should start to look at how to gear our economy towards that (sustainability efforts) and how the government can support it either through tax incentives or in other forms of legislation,” he said.

Prime Minister Datuk Seri Ismail Sabri Yaakob had in September, when tabling the 12th Malaysia Plan for 2021-2025, expressed a commitment for Malaysia to be a carbon-neutral country by as early as 2050.

He said economic instruments such as carbon pricing and carbon tax would be introduced, while details of other measures for carbon reduction would be announced after the study of the Long-term Low Emission Development Strategy is finalised at the end-2022.

Meanwhile, Khazanah Nasional Bhd economist and head of research Nicholas Khaw said moving forward, we have to keep in contact with what’s going on around the world with many countries including Malaysia are doing fiscal injection into the economy as a result of the Covid-19 pandemic.

He said this could lead to a higher fiscal deficit and the question now is revenue. The path toward sustainable fiscal balance really depends on what kind of new idea to get a source of revenue.

“I acknowledged the government’s projection of GDP and fiscal deficit on the Budget 2022 is pretty realistic, of course, it will depend much on short term economic recovery.

“A lot will depend on how much consumption growth as many sectors are reopening, especially tourism. Malaysia and Singapore will reopen their mutual border after more than a year which will be crucial to economic recovery,” he added.