KUALA LUMPUR (October 12): Appropriate economic and distributional analysis will need to be carried out if the government intends to consider a full-fledged capital gains tax (CGT), Malaysian Institute of Experts said -chartered accountants (MICPA) and Deloitte Malaysia.
Indeed, the country is still a developing country and competes with foreign direct investment with various countries in the region, MICPA and Deloitte said in a joint report on tax reforms.
“However, a merger of the current Real Estate Gains Tax (RPGT) into the income tax structure makes sense as an approach to improve efficiency and reduce compliance costs,” they said. added.
The report also suggests that if CGT is to be implemented, the current RPGT law of 1976 could be the starting point for full-fledged CGT legislation.
âThe current RPGT form could be changed for CGT purposes. A collection mechanism such as withholding tax can also be considered, âsays the report.
MICPA and Deloitte said any new tax introduced should be relatively straightforward and should not impose excessive compliance costs on the community and a disproportionate administrative burden on authorities.
Noting that the introduction of a new tax carries risks, the report states that they potentially include increasing effective tax rates on certain investments when increasing the taxation of capital gains, which in turn will reduce investment levels.
“In itself, this is likely to have a negative impact on productivity and economic growth,” he said.
In addition, since a CGT scheme is often perceived by taxpayers to be unfair or unreasonable, it would likely elicit an adverse reaction among those affected.
MICPA and Deloitte have also said that income volatility resulting from the taxation of capital gains will pose challenges for budget management.
This, they said, can be seen in how the direct macroeconomic impact becomes countercyclical, where tax revenues rise when asset prices rise and fall when asset prices fall.
On top of that, the risk of introducing new taxes could make doing business in Malaysia more expensive. This would mean that the country would have to bear the medium and long term risk of companies that might leave the country, resulting in an overall reduction in tax revenues.
âTo overcome the negative ramifications above, it is incumbent on tax authorities, advisers and professional associations to educate taxpayers from time to time through seminars, workshops, circulars and updates, between others.
âIn addition, CGT should be phased in through a lower rate and limited scope, to begin with. This is in order not to cause a major shock in the market, which could present Malaysia as hostile to business, âMICPA and Deloitte said.
Permanent wealth tax is not an option, according to MICPA and Deloitte