KUALA LUMPUR, Oct 14 2018 : As the announcement of the 2019 Budget looms near, experts have mixed views over the government’s plan to introduce new taxes due to various concerns.
The probability of introducing the inheritance tax, digital tax, capital gains tax and soda tax, as well as increasing the sin tax, has been thoroughly weighed by experts in the field as per challenges and effects of the tax implementation on the consumers.
YYC Tax Consultant Yap Shin Siang said the implementation of inheritance tax had its limitations as it contradicted the Real Property Gains Tax (RPGT) Act 1976.
“RPGT is chargeable on gains arising from the disposal or sale of real properties or shares in real estate property companies. Besides contradicting the RPGT Act, it will also create double taxation,” she said.
There are few conditions that are not liable to RPGT:
(i) The disposal of property made after five years from the date of acquisition of the property other than company, and other than non-citizen and non-permanent resident individual is not liable to RPGT.
(ii) Transfer of asset by the way of gift by a donor who is citizen, where the donor and the acquirer are; husband and wife, parent and child and grandparent and grandchild.
(iii) Gain on disposal of one private residence only for a Malaysian citizen or permanent resident.
“In a situation where a father passed away and the property is being passed on to his son, there will be no RPGT on the property but there will be an inheritance tax.
“As a result, it contradicts with RPGT because RPGT doesn’t charge tax on the property again when the owner of the property has passed away and pass it to the son,” she said.
She added that the implementation of inheritance tax may trigger individuals to sell off all the properties and migrate overseas, create a tax inflation and increase the burden of the acquirer to bear on the property been transferred to him/her.
“This will end up in the property being sold by force as the acquirer cannot afford to pay for the inheritance tax charge,” Yap added.
Based on the Act, the RPGT is subject to chargeable gains derived from the disposal of property.
With the tremendous growth in digital economy over the past years, there have been suggestions on the need to implement digital tax to increase the revenue collected by the government.
However, the concern is that online platforms do not own any items and thus, the high probability of double or maybe triple taxation.
Citing an example, Yap said the Inland Revenue Board viewed the digital marketing payment to non-resident company as royalty income and hence subject to withholding Tax (WHT).
WHT is a tax that a payer has to pay when certain types of payments (interest, royalty, services) are made to non-resident companies.
“What can be done is to promote the digital marketing sector better and provide double deduction on using digital marketing service. The government should also review the definition of digital marketing payment and remove it from the definition of royalty,” she said.
As for soda tax, Kamlesh Mahtani, Head of Sales, Start-Up and Small Business of accounting firm Sage said the implementation of the tax would initially impact the beverage industry but will naturally follow through.
“Businesses that sell these drinks may fear lower revenue from sales of these items as the price would be raised. It is however an opportunity for drink manufacturers to be encouraged to reduce the amount of sugar in their drinks to a certain level to be exempted from the tax,” he said.
However, Mahtani stressed that the tax mechanism must be implemented properly, with the taxation and regulations rightly put in place.
“Should the tax becomes a reality and implemented here in Malaysia, businesses need to adapt to the changes into their accounting software, making the transition easy for businesses affected,” he said.
Globally, over 26 countries, from Portugal to Saudi Arabia, have introduced a variation of this soda tax which they term the “sugar tax” in their respective countries or cities.
The sugar tax is basically a tax on sugary drinks, to increase the price of these drinks, to influence consumer behaviour as well as encourage companies to reformulate and cut sugar.
Capital Gains Tax
Meanwhile, Fund Manager Danny Wong Teck Meng said that the implementation of the tax on stocks and bonds now will lower the returns on investment.
At this time, with global market volatility, it might create uncertainty among investors.
“In taxes, the most important is the rate. If this takes place, investors will compare on what they can get if they invest here in Malaysia or when they invest in other countries,” he said.
A capital gains tax is a tax on the profit realised on the sale of a non-inventory asset that is greater than the amount realised on the sale.
The most common capital gains are realised from the sale of stocks, bonds, precious metals, and properties.
Increasing Sin Tax
Wong said increasing sin tax was acceptable such as on cigarettes, alcohol and gaming as it is not a broad-based tax.
“These items are placed under the sin tax due to its negative effect on users especially health, hence increasing it will only affect a small portion of the society, not the majority,” he said.
Under the Sales and Services Tax, alcohol is being taxed at 10 per cent compared to only six per cent during the Goods and Services Tax (GST) regime.
However, he said the government should also strengthen the enforcement to ensure that contrabands were hard to obtain in the market to avoid tax leakages.
Carlsberg has reportedly said that contraband beer consumption made up 22 to 25 per cent of the market, with the bulk of it occurring in Sabah and Sarawak and impacting government tax revenue.
As for smuggled cigarettes, it was reported that the revenue loss by the government was estimated at RM4 billion.
To sum it all, Wong said broadening the taxes base affecting consumers as a whole right now would not be a positive move as it will be the main cause of price inflation.
“It is true that there are many other factors that affect prices and tax is only a component of it,” he said.
However, he stressed that if the implementation of a new tax is not being done properly and various taxes are implemented one after another, it will create multiple layers of taxes which is bad for the end user.
“With the GST, we know what we are being taxed for and it is a standard rate of six per cent for everything, or it is zero-rated.
But if all these new taxes come in now like the soda tax or digital tax, it will create multiple layers of taxation,” he said. – Bernama