GEORGE TOWN – DAP’s 42 MPs will collectively oppose the Finance Bill when it is up for debate at the Dewan Rakyat next week because of the federal government’s move to eliminate tax exemptions on foreign-sourced income (FSIE) from next year onwards.
In a statement today, DAP secretary-general Lim Guan Eng said the government’s decision is uncompetitive, unfair, and harmful to long-term investment attractiveness and the nation’s financial interests.
“The withdrawal of FSIE includes remittances for dividends of companies and individuals, interest income and rental or gains on the disposal of properties overseas and possibly for children working overseas sending home living expenses for their old parents.”
From January 1, 2022, the tax exemption on foreign-sourced income received in Malaysia under Paragraph 28, Schedule 6 of the Income Tax Act 1967, will be withdrawn, meaning that foreign-sourced income – whether from business or employment or in the form of dividends, royalties, interest, or rental — remitted into the country will be subject to Malaysian tax.
This tax exemption has been in place since 1998 for companies and since 2004 for individuals, in a bid to encourage remittance of such income.
“Clearly, the withdrawal of the FSIE will do the opposite,” he said.
DAP MPs, he stressed, will oppose the Finance Bill when it is debated next week unless there is clarity that the FSIE will not be withdrawn or will be substantially reviewed as to not affect individuals and companies wanting to bring back their foreign earnings into the country.
Lim cautioned that not only will the withdrawal of FSIE result in capital flight and reductions in capital inflows, but it is also unfair to individuals who are compelled to work overseas due to better pay prospects and opportunities.
The Finance Ministry estimates that a mere RM1.2 billion in revenue can be collected by taxing foreign-sourced income in 2022.
“Is the extra RM1.2 billion in revenue worth losing out to our neighbouring countries with a more attractive tax regime?
“The real concern are companies that had repatriated an annual average of RM27.8 billion in investment income – from both direct and portfolio investment – back to Malaysia between 2010 and 2020, compared with RM7.5 billion the decade before, may no longer do so,” Lim pointed out.
The Inland Revenue Board (IRB) recently announced it was offering a Special Income Remittance Programme to residents in Malaysia who have income kept abroad, which will run from January 1 to June 30, 2022.
During these six months, the Finance Bill 2021 proposed that the concessionary rate of 3% tax would be imposed on foreign-sourced income remitted.
After that, the normal tax rate applies.
This means that for foreign-sourced income and foreign dividend income remitted back after the six-month period, the taxpayer will have to pay based on his individual income tax bracket or, for a company, at the 24% corporate tax rate.
If the income is sourced from a country that has entered into a double taxation agreement with Malaysia, then any differential in the respective tax rates that is in favour of the taxpayer will have to be paid.
IRB added that it would not carry out an audit review or investigation, nor impose a penalty on income brought in during this period but would accept it in good faith.
“No one believes in the commitment of the IRB, which has a record of breaking its promises under the current administration,” said Lim. – The Vibes, December 11, 2021.
