Thailand
Malaysia: Covid-19 may hurt corporate tax
PETALING JAYA: The Covid-19 outbreak may have yet another casualty on its hit list: corporate tax collections to the national coffers.
Sources told StarBiz that there is an issue that would likely come up now with projected corporate tax collections, the main driver of government revenue, expected to fall.
The corporate tax collection could be impacted following a reduced profit projection for this year.
Companies usually pay their taxes for the year in advance, based on profit projections that had been made in the previous year, as per the usual practice.
The concern is that there could be a shortfall in corporate tax payments to the Inland Revenue Board due to the anticipated poor performance of companies in the first and/or second quarter of the year due to the Covid-19 outbreak.
Ernst & Young Tax Consultants Malaysia tax leader and business tax services leader Amarjeet Singh(pic) told StarBiz that the expected impact of this situation would be felt in the middle of this year.
“A majority but not all companies adopt a December year end and they would have estimated their tax for this year in the previous year. Estimates for the year that have been submitted last year cannot be below 85% of last year’s tax, ” Amarjeet said.
He said companies usually made their tax payment through installments from the month of February.
“The majority of companies will file their tax return end-July for the year ended 2019 and then pay the balance of the tax owed to the government (if any). So the first opportunity to revise these tax estimates will only be in June and there should not be any immediate impact until June the earliest, ” Amarjeet said.
“There are also the balance of outstanding taxes that will by paid in the months of July and/or August, so the true impact of this will be felt after this period. These companies are expected to make revisions (to tax payments) from the month of June and tax installment payments from July onwards will drop.”
He noted that while the impact would be felt in the reduced payment of corporate taxes, other taxes that have also kicked in this year such as digital service tax would help cushion this impact.
According to a report by The Star last year, collection from corporate tax had been expected to increase by 6.7% to RM75.5bil in 2020 from RM70.76bil last year.
Corporate tax is expected to account for 30.9% of the total projected tax revenue for this year from 26.9% in 2019, the report said.
The report noted that the anticipated higher collection from corporate taxes is based on the assumption that there would be better corporate earnings prospects and continuous efforts in enhancing auditing and tax compliance this year.
Amarjeet noted that while corporate tax is expected to be the main driver of government revenue this year, it is not the sole source of revenue.
He said the market is looking forward to an announcement on economic stimulus by the government to see how it would help pump prime the economy and ensure economic growth.
“This has happened in the past when the government had seen some sort of downward trend in terms of economic growth. Note that government spending is not just derived from corporate tax revenue and there are other sources of funds, ” he said.
Meanwhile, Axcelasia Taxand Sdn Bhd chairman Veerinderjeet Singh said this issue highlighted the need for the government to move to a more broad-based taxation system.
“The goods and services tax (GST) is one of the ways but not the only way to do this. It can be through sales tax, service tax or GST but the key thing is to make it efficient. It can be made more efficient by exempting certain parties, so that we don’t have cascading impact along the supply chain but only at the end user, ” Veerinderjeet said.
He said a consumption-based tax would be a better tool to derive government revenue as it evens out fluctuations in tax revenue flow.
“Let’s say, in a recession, the consumption tax revenue also drops but it is not as distinct as income tax revenue, ” he added.
Veerinderjeet said it would be difficult to estimate the potential revenue drop to the government at this point, noting that the previous SARS outbreak stabilised after three months.
“The government is weary that if tax revenue drops significantly, it will impact the country’s deficit but this is a unique and extreme situation. Perhaps deficits will go up this year but it is something many governments and rating agencies are aware of, ” he said.
Source: https://www.thestar.com.my/business/business-news/2020/02/24/covid-19-may-hurt-corporate-tax