Tax hike for high-income earners a surprise: Expert

The increase in income tax rate for resident individuals and non-resident individuals of up to 28% is unexpected and is a worrying trend, said Taxand Malaysia Sdn Bhd chairman Dr Veerinderjeet Singh.

“I was surprised by the increase in tax rates for the high income bracket. Of course some will say that these people are in the very high income level … I’m not worried about these people. I’m worried about the trend,” he told SunBiz.

He said the trend of increasing personal tax rates is worrying when both personal and corporate taxes are being reduced around the world.

Under Budget 2016 as announced by the prime minister last Friday, the income tax rate for resident individuals with chargeable income from RM600,001 to RM1 million will be increased to 26% from 25% previously.

For resident individuals with chargeable income exceeding RM1 million, the income tax rate will be increased to 28% from 25% previously.

For non-resident individuals, the income tax rate was increased to 28% from 25%. These increases are effective from the year of assessment 2016.

“What message are we sending to foreign direct investments? Some say it is a small amount from the salaries that expatriates are being paid but it sends a message that can deter some investors,” said Veerinderjeet.

Having said that, Veerinderjeet added that investors would make decisions based on the whole picture including other factors, and will still invest in Malaysia.

He also sees the government taking on a balancing act; while income tax rates have been raised, tax relief is being given to the people in various areas including childcare and parental care.

However, based on the overall trend of tax rates, he does not see this as a good strategy for the long-term.

To encourage more employees to voluntarily contribute to the social security protection scheme, the government announced that employees will be eligible to claim relief up to a maximum of RM250 per year on the contribution to Social Security Organisation (Socso).

Veerinderjeet said this will only have an impact on a small group as mandatory contribution to Socso is only for those with monthly salary of RM4,000 (previously RM3,000) and below. In addition, not everyone contributes to Socso despite the option for voluntary contribution.

“These minor adjustments sometimes don’t benefit everyone but the idea is to give individuals the feel good factor but in reality it is only affecting a small group of people,” he added.

Commenting on the Goods and Services Tax (GST), Veerinderjeet said the RM39 billion estimated GST revenue for 2016 was a pleasant surprise, compared with the initial estimation of some RM31 billion.

“What was initially said was RM31 billion. That is good. It also means that perhaps, compliance rate is good and in terms of administration they are doing well. But give it more time,” he said, adding that implementing GST is not easy and there are still refunds to be made.

On the additional items added to the zero-rated list namely controlled medicines, over-the-counter medicines and several food items, Veerinderjeet said this complicates further an already complicated GST system.

“It also causes concern to traders as they now have to make changes to their systems including their IT system and it is a cost to them. There was no special tax reduction for these traders who will be affected,” he said.

Overall, he said, Budget 2016 is a balanced and mildly expansionary budget, which fits the circumstances and is well within expectations.

“It is the best we could do given the context of the economy and revenue. The only surprise for me was the increase in income tax rates,” he said.

Source – http://www.thesundaily.my/news/1593210

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