KUALA LUMPUR – The government failed to achieve its targeted tax revenue collections in the first half of this year (1H21) following a raging health crisis that affected business activities and saw an increased number of people losing income.
In a pre-Budget 2022 statement today, the Finance Ministry said further decline can be expected in the second half of 2021 (2H21).
The government had initially set out to collect RM162.1 billion in taxes by year-end, making up 10.3% of the gross domestic product, including RM120 billion in direct taxes and RM42.1 billion in indirect ones.
However, the ministry said the government’s direct tax collection stood at RM67.4 billion (56.2% of the target) as of July this year, while indirect taxes was at RM24.8 billion (59%).
“Revenue collection for the first half of 2021 was lower than expected and subsequent collection is expected to decline due to the Covid-19 pandemic and the implementation of the movement control order,” it said.
The lower-than-expected tax collection is despite measures being introduced to broaden the tax base, including imposition of excise duty on all types of cigarette devices and expanding tourism tax levy to cover accommodation booked through online platforms.
This could also be partly due to several tax initiatives introduced by the government as part of this year’s budget as well as various economic stimulus packages.
According to the ministry, the government increased the limit of income tax relief of medical expenses and serious illnesses from RM6,000 to RM8,000, as well as deduction on expenses incurred by employers related to Covid-19 preventive measures, among other initiatives.
It also reduced the individual income tax rate by one percentage point for taxable income of RM50,001 to RM70,000, extended the special tax relief period for purchase of electronic gadgets, and increased the income tax exemption limit for compensation for loss of employment.
Additionally, it exempted the sales tax on locally assembled and imported passenger cars and excise duty on motorcycles, beside service tax exemption for hotel and tourism tax.
To increase tax revenue in the future, the ministry said the government is considering measures to increase compliance, including introducing a tax compliance certificate as a pre-condition for bidders to participate in public procurement.
There will also be a special voluntary disclosure programme for indirect taxes administered by the Customs Department, and the implementation of a tax identification number to avoid revenue leakages or harmful practices.
To attract investment, the ministry said a comprehensive review of the tax incentive framework is underway.
This measure, it said, is to ensure that the tax incentives offered to foreign and local investors remain relevant to the current business landscape while continuing to maintain the country’s competitiveness in attracting quality investments and providing positive returns to the country's economy and fiscal position.
Among the measures are an incentive framework that is responsive to changes in business environment and economic landscape, ensuring the framework complies with international commitments, and making sure Malaysia remains a top investment destination. – The Vibes, August 31, 2021
