Budget 2008 At A Glance
It was announced by the Prime Minister Datuk Seri Abdullah Ahmad Badawi in his Budget Speech on 7th September 2007 recently that corporate tax would be further reduced to 25% for 2009 from 28% in 2006, 27% in 2007 and 26% in 2008. The purpose of this exercise was to enhance the country’s economic competitiveness and to spur the growth of private investments. In addition, the government would implement a single-tier tax system, effective from year of assessment 2008 in which commercial profits would only be taxed at the company level and dividends received would be tax-exempted. Although there was a reduction in corporate tax rates, Malaysia’s tax regime was still not among the lowest in the Asean region where tax rates in Hong Kong and Singapore were in the mid-tens.
Therefore the tax reduction announced in September 2007 was an encouraging step by the Malaysian government in the right direction and there was still room to further cut taxes in the coming years. On a macro level and in addition to cutting the corporate tax, the government also proposed to simplify the issuance of work permits and visas for foreign skilled-workers who intended to work in Malaysia so that multinational companies could draw on the adequate supply of expertise and talents for their commercial and industrial activities in Malaysia. When taxes are reduced, costs of production are indirectly reduced, thus making it conducive and profitable for foreign investors to do business in Malaysia. And, to tap funds from the Middle East, the Malaysian government will be issuing three new licences to leading stock-broking firms that are able to source and intermediate business and facilitate fund inflows from the Gulf countries. These licences will than enable them to set up Islamic stock-broking companies that will have tax incentives incorporated therein.
On the gaming and beer-producing activities within the country, such companies should be relieved to know that there was no increase in corporate taxes under the 2008 Budget.
At the same time, the Malaysian government is stepping up efforts for the country to become an international Islamic finance centre by allowing:
Foreigner to wholly own Islamic fund management companies,
Islamic fund management companies to invest all their assets abroad,
All the fees received in respect of Islamic fund management activities to be income tax exempted until year of assessment 2016.
Non-resident consultants with the required expertise in Islamic finance to be also given income tax exemption.
To enhance this, the Employees Provident Fund (EPF) was empowered to channel a RM7 billion sum to be managed by the Islamic fund management companies. To improve corporate governance, the government will establish a Public Companies Accounting Oversight Board (PCAOB) under the auspices of the Securities Commission (SC) and the PCAOB will be responsible for monitoring auditors of public companies to ensure that the quality and reliability of audited financial statements are maintained.
And to improve further such corporate governance, the government also amended the Code of Corporate Governance. The amendments included:
Executive directors will no longer be allowed to become members of the audit committee.
The internal audit function will be mandated for all public-listed companies
Directors will responsible for ensuring the adherence to the scope of internal audit functions as specified by the SC.
As a measure to encourage more listed-companies to undertake mergers and acquisitions, the stamp duty exemption will be extended to 31st December 2010.
On a micro level, and to expedite the development of the Iskandar Development Region (IDR) project in south Johor, the Malaysian government had proposed to provide an additional RM100 million, particularly for investment in healthcare services-related projects. The government had earlier set up a strategic investment fund (SIF) amounting to RM200 million to provide the catalyst for early investments in the priority sectors of the IDR.
Summary of Budget 2008
The government is committed to provide a conducive investment climate for the private sector as well as foreigners by implementing the following measures:
Cut in corporate income tax to 25% in 2009 from 28% in 2006, 27% in 2007 and 26% in 2008. This will enhance Malaysia’s competitiveness in terms of attracting foreign investments.
A single-tier tax system will be effective from year of assessment 2008. Profits are only taxed at company levels and dividends received are exempted from tax. This will encourage long-term investment in equities, particularly in companies that declare generous dividends.
The government will shorten the processing period for the issuance of work permits to 7 days for skilled workers versus the current 14 days. This will encourage knowledge-based and service-oriented foreign investments.
Public Companies Accounting Oversight Board (PCAOB) will be set up to monitor auditors of public-listed firms to ensure quality and reliability of audited financial statements. This will promote better corporate governance.
Stamp duty exemption for mergers and acquisitions (M&As) exercise to be extended to 31st December 2010. This will spur more M&A activities thus boosting the capital market.
Broking commission rate for Internet trading and cash upfront transactions will be fully negotiable. Minimum broking charge per transaction will be fixed at RM40.00/-.This will encourage on-line trading. Remisiers’ earnings may be affected.
what will help Malaysia to become Islamic financial hub and help increase inflow of petrol dollars into Malaysia is the fallowing :
Income tax exemption for non-resident consultants with the required expertise in Islamic finance.
Islamic fund management companies permitted to be wholly owned by foreigners
EPF channels RM7 billion to Islamic fund management companies
Fees received in respect of Islamic fund management activities will have income tax exemption until year of assessment 2016.
Issuance of 3 new stock-broking licences to stock-brokers that are able to source and intermediate business and facilitate fund inflows from the Middle East.
An additional RM100 million allocated to strategic investment fund for Iskandar Development Region (IDR). This will provide the catalyst to attract local and foreign investments.
EPF contributors allowed to make monthly withdrawals from Account 2 for the financing of one house. This will spur residential property sales and thus create a higher consumption for building materials.