Malaysia urged to make taxes 'more friendly' to attract more businesses

KUALA LUMPUR: Taxes need to be more “friendly” in order to attract more businesses and remain competitive, said Ernst & Young Tax Consultants Sdn Bhd Malaysia tax leader Amarjeet Singh.

“If you make the tax more friendly, you attract businesses. More businesses generate more volume, more volume generates more tax revenue,” he said during the “Tax and Regulatory Policies: Impacting How Malaysians Do Business” seminar yesterday.

He said on a taxes per population basis, Singapore collects more than Malaysia although its tax rate is lower at 17% compared with Malaysia’s 24%, which means the former is doing the right things to attract more businesses.

However, for Malaysia to start looking at reducing the tax rate, the Goods and Services Tax (GST) must first be given time to stabilise.

“Once the income from GST is more certain, then we can look at lowering corporate tax,” Amarjeet said.

Institute for Democracy and Economic Affairs (Ideas) senior fellow Carmelo Ferlito said increasing government intervention and rising taxes would lead to a higher risk of corruption.

He said more regulation and more taxes could lead to higher risk of looking for “alternative” ways. For example in the alcohol and tobacco sectors, it is wrong to assume that people will continue buying even if taxes are raised because, in reality, they will turn to the illicit market.

“The black market will have its ‘beautiful revenge’ if the taxes are too heavy,” he added.

Although Malaysia has favourable conditions that can attract foreign investors, there is also an alarming growth in government regulation, excess government spending and the misleading idea of following past implementations of European countries.

“To follow Europe doesn’t necessarily mean to be more advanced. If Europe is doing silly things, we don’t necessary follow … this can be misleading among Asean countries. To follow advanced countries is not always the right path,” he cautioned.

Ferlito said Italy faced a big corruption earthquake in 1992 that wiped out the ruling party that was in the country for some 50 years and warned that Malaysia could be making the same mistakes that Italy made a decade ago.

He said Malaysia should focus on preserving the positive points while fighting the negative points, which are opportunity costs of government intervention.

Some of the recent alarming signals that are potential threats to businesses include GST, price control, withholding tax and payment of taxes in advance, with payment of taxes in advance being a drain on cash resources.

On the bright side, Malaysia has a better tax system than Europe, political stability, good system of incentives and good infrastructure. It is also cheaper and faster to set up companies here and easier for companies to engage regionally due to its position as a strategic regional hub.