Thursday October 13, 2011
Achieving Budget 2012 goals
By YEO ENG PING
BUDGET 2012 aims to reduce the budget deficit from the estimated 5.4% of GDP for 2011 to 4.7% for 2012. The deficit reduction will represent a big step towards a balanced budget, and bring Malaysia closer to the pre-2008 deficit levels (2008 budget deficit was 4.8%).
This will have a positive effect on the perception of Malaysia, which is especially important in view of the uncertain global economic outlook for 2012.
The budget has been termed an “election budget,” and in some ways that is true with a little something for everyone. While there was a lot of discussion before the budget about the imminence of the good and service tax (GST), no new taxes were announced. Neither was there a significant increase in any of the existing taxes, be it income tax, duties, sales tax, excise, service tax or stamp duty.
The exception was the proposed increase in real property gains tax (RPGT) rate from 5% to 10% for gains on disposals of real property interests held for two years or less. However, this was less a revenue-generating measure than it was a tool to help curb speculation for properties, noting that RPGT revenue for 2011 is expected to amount to a modest sum of RM369mil.
In order to achieve the goal of a 4.7% deficit, without new taxes and direct measures to increase taxes, there will be a tendency to focus a lot more on how to increase the effectiveness and efficiency of the current tax administration; how to make the most of the existing tax regime.
To quote the Prime Minister: “… an effective and efficient tax administrative system is a precondition to widen the tax base and increase compliance by tax payers. Apart from strengthening the ICT systems of revenue collection agencies, enforcement measures will be enhanced through the implementation of integrated operations with other relevant agencies.”
This points towards a greater focus on strategic tax enforcement with:
● Greater use of ICT – to elicit more systematic and targeted analysis of taxpayer profiles and history to better identify potential non-compliance; and
● More cooperation and sharing of information between regulators – to increase the efficiency tax audits.
There are also several proposed legislative changes to the tax legislation which enhance the powers for tax enforcement, including:
● To provide the director general of Inland Revenue (DGIR) the power to disregard any information which is provided late, past the time specified in the DGIR’s notice demanding such information. Such information will also be barred from being used to appeal against a tax assessment, before the special commissioners of income tax or court. Presumably this proposal is to ensure a more speedy finalisation of taxes, but the implementation of this proposal needs to be even-handed and reasonable, lest taxpayers’ basic rights are unfairly eroded.
● To extend the DGIR’s powers of access to computerised data – taxpayers must provide information such as the password, encryption code, decryption code, software or hardware and any other means required to enable comprehension of the computerised data.
● To require specified information on payments made to agents, dealers and distributors, to be disclosed in a prescribed form and provided to the payees for tax purposes. One reason for this is to facilitate better monitoring of income reporting.
● To permit the DGIR to impose tax payments where a taxpayer has failed to furnish a tax return or where the DGIR has reason to believe that a return is incorrect. The scheme is novel in that the DGIR will have the power to collect taxes even before a tax assessment is issued.
These measures are consistent with the trend observed in the last decade where the Inland Revenue Board’s powers of access, enforcement and collections are enhanced. The challenge is to ensure the right balance is struck in the exercise of these powers by the relevant authorities.
It would not be complete to mention several positive developments for taxpayers in the area of tax administration including:-
● Compensation of 2% on the amount of tax refunded late by the IRB, from year of assessment (YA) 2013; and
● Reduction in the time for tax audits from six years to five years, from YA 2013.
This is an inclusive budget and has the interests of many needy sections of our society. The achievement of the goals would partly rely on an efficient tax administration, and it is hoped that more details on how these proposals will be implemented, in the interest of transparency and greater certainty for taxpayers.
·Yeo Eng Ping is the national tax leader of Ernst & Young Tax Consultants Sdn Bhd.