Thailand
Malaysia: Tax framework fit for modern business
RECENTLY, there has been much discussion about reforming or modernising Malaysia’s tax framework to fit the nation’s requirements in the 21st century.
Increasingly complex business transactions, rising cross border transactions, new ways of doing business, speed of change and technological developments – all these are contributing to the demand for a tax framework that is agile and able to meet the business requirements of a transformative time, where digitalisation, geopolitical and technological disruptions are the norm.
So what kind of tax framework is fit for such a world and in the future? Nothing complex or complicated, really.
Simple and easily understood
A good tax framework that will stand the test of time needs to be simple and easily understood.
Tax laws should not be overbearing so that taxpayers are able to comply with the rules without being burdened by high compliance costs. Make the filing of tax returns and payment of taxes easy for taxpayers so that they can manage their tax affairs anywhere, anytime.
Transparent and fair
Tax authorities should be clear about their role and objectives when formulating tax policies and preparing tax legislation. The impact of policies and legislation to industries and businesses needs to be carefully considered and measured.
Modifications to the tax legislation should be with the aim of improving the overall quality of the legislation, such as providing greater clarity and transparency on the tax treatments that impact businesses.
Authorities also need to consider practical implications, such as how the law will be administered consistently and how disputes can be resolved quickly, fairly and in a cost-effective manner.
Imposition of penalties, for instance, needs to be carefully thought through. The severity of penalties should be based on the behavior of taxpayers.
A person who makes an unintentional error should not be penalised; while those who deliberately choose not to fulfill their tax obligations will need to face stiffer penalties.
In situations where there is disagreement with the decisions or legislative interpretation of the tax authorities, taxpayers should be given fair and equitable appeal avenues. This helps to build trust and confidence in the system – that the right thing will be done – and in turn, fosters a greater willingness to ensure tax obligations are fulfilled.
On this point, it is noted that the Inland Revenue Board of Malaysia is already closely looking into the issue of expediting tax appeals and imposing a fairer penalty system, and has been taking some positive steps.
Robust and flexible
A good tax system needs to be robust and flexible to ensure it keeps pace with economic growth and global developments, while taking into account the needs of the country and businesses. The system must consider the big picture, promote economic efficiency and encourage behaviours that contribute to economic development.
For example, tax incentives encourage the growth of certain sectors, while taxes are imposed on certain activities to discourage the behaviour.
Ireland recently made changes to its tax bands that benefitted middle-income earners; while the UK introduced a “sugar levy” to discourage excessive consumption of sugar.
Communicative and engaging
A factor that contributes to the success of a tax framework includes active engagement and communication with the taxpaying public. The behaviour and performance of the tax administration contributes significantly to the public’s perception about paying taxes. An effective tax administration collects the right amount of tax at the right time, with minimal cost to the government while being equitable to taxpayers. It allows the government to deliver services and manage the country, while minimising obstacles to businesses and economic growth. For this to happen, continuous consultation and engagement with taxpayers, and understanding the implications of tax legislation to businesses are important.
An effective tax framework that is fit for the times really boils down to basic, simple principles of ensuring transparent and fair laws are applied to all, at the appropriate times, in appropriate measures, for the good of the greater community.
Farah Rosley is a tax partner with Ernst & Young Tax Consultants Sdn Bhd. The views reflected above are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.
Source: https://www.thestar.com.my/business/business-news/2018/10/31/tax-framework-fit-for-modern-business/#orqojbXiYVFfyzfq.99