Govt may bring forward corporate tax cut to 2015 - analysts

AllianceDBS Research Economist, Manokaran Mottain said while the government has announced the 1.0 percent reduction in corporate income taxes in Budget 2014 to take effect in 2016, he expects the government to bring forward the planned effective date to 2015.

In the private sector, reduction in corporate and personal income taxes is a recurring wish list item, he said in its Economic Focus report.

"The cut in these taxes could likely shave off as much as RM4.0 billion of the government’s direct tax revenue in the year of implementation.

"Nonetheless, with a more efficient tax administration framework updated in 2013 by the Malaysian Inland Revenue Board on top of the GST revenue stream and savings from fuel subsidies when the government initiates a multi-tiered rationalisation mechanism, the decrease in direct tax revenue is expected to be offset," he added.

Manokaran said Budget 2015 is expected to be business-friendly, without risking sovereign rating confidence in the economy.

Kenanga Investment Bank Bhd in its economic viewpoint also noted that to boost competitiveness and attract investments, the government might make an early announcement on reducing the corporate tax by 1.0 percent for 2016.

"The reduction in corporate tax in 2015 could be a prelude to further reduction going forward. The rationale is that Malaysia is far behind the curve in reducing tax rate in the region," it said.

Meanwhile, RHB Research said Budget 2015 is likely to focus on efficiency and effectiveness of existing tax and non-tax incentives.

"We do not see a further cut in corporate income tax in Budget 2015, as the government has already proposed a reduction in corporate income tax by 1 percent to 24 percent in Budget 2014," it said in its note.

RHB Research also expects the government to carry out more stringent tax audits and investigations to ensure greater compliance and reduce tax evasion.

At the same time, the government may liquidate some assets and lower equity stakes of government-linked companies to raise revenues.

The upcoming Budget 2015 would also be the last year of spending of the five-year allocation of RM230 billion under the 10th Malaysia Plan.

In the first four years from 2011 to 2014, development expenditure amounted to around RM180 billion, leaving around RM50 billion for Budget 2015.

"This is a healthy sum given that the average annual spending for the first four years was around RM45 billion per year," Manokaran said.

The government is expected to further explore and enhance its framework for the private-public business venture model given the array of high impact investment-led projects such as the Mass Rapid Transit (MRT) construction and Refinery and Petrochemical Integrated Development (Rapid).

With the government’s continued commitment to the Economic Transformation Programme (ETP), construction and oil and gas would continue to benefit from investment-driven demand.

The GST implementation would definitely be in the limelight during Budget 2015, and the government is likely to provide further clarity on the GST implementation and classification of supplies to be either exempted or zero-rated.

"We expect the government to draw up more details to roll out the GST. This could potentially unveil beneficiaries and casualties, including some tax allowances for certain industries or sub-sectors," RHB Research said.