PETALING JAYA: The Center for Market Education (CME) has proposed that the government impose a simpler tax system for small- and medium-sized enterprises (SMEs), a move that would boost the growth of firms.
In a newly released policy brief titled “Developing a Modern Tax Framework for Malaysia”, the think tank said a simpler set of tax rules for SMEs would reduce firms’ compliance costs and administrative requirements.
This would not only spur the growth of SMEs but could also increase voluntary compliance among firms, it said in a statement today.
CME also proposed a “presumptive tax” for SMEs below a certain threshold, where they are taxed a fixed prescribed amount or percentage of sales generated.
Tax specialist Veerinderjeet Singh, who came up with the brief, said there was a need to reform and modernise Malaysia’s tax system to fit the nation’s current requirements, while citing several other factors.
“Increasingly complex business transactions, rising cross-border transactions, new ways of doing business, the current speed of change and technological developments – all of these factors are contributing to the demand for a new tax framework,” he said.
He also proposed introducing a tax file number allocated to everyone regardless of their tax status in order to boost tax compliance, as well as to establish a single agency for tax incentives.
In its 2020 budget, the previous Pakatan Harapan-led government had planned to introduce tax identification numbers for individuals aged 18 and above by 2021. However, with the change of government, there has been no update on the matter.
CME pointed out that Malaysia had a very narrow tax revenue base, with only 21% of registered companies and 15% of employees subject to income tax.
“With around 2.2 million individuals paying income taxes compared to a workforce of 14 million, this puts into focus the extremely narrow base from which the government tries to extract its tax revenue,” it said.
To address this, it proposed an increase in tax efforts to reduce the tax gap, by widening the coverage to the informal sector, enhancing tax compliance and boosting enforcement.
It also suggested a greater shift to indirect taxes by widening the coverage of existing consumption taxes as well as increasing its rate, and the introduction of wealth, digital and capital gain-based taxes, depending on the economic circumstances.
It said Putrajaya should also streamline the tax incentive regime by instituting reviews on its use and effectiveness, while simplifying the Promotion of Investments Act 1986.
“In such a crucial moment in which fiscal space is very limited, we hope that our proposals can contribute to the debate for relaunching the Malaysian economy in general,” said the think tank’s CEO, Carmelo Ferlito.
Source:https://www.freemalaysiatoday.com/category/nation/2021/07/28/simplify-tax-rules-for-smes-to-boost-growth-says-think-tank/