- 2 weeks ago
More tax relief, but how much more breathing room for Malaysians? Soh Lian Seng, Head of Tax at KPMG, examines the impact on household purchasing power, business growth and the government’s ability to fund public services while reducing the deficit.
Category
🗞
NewsTranscript
00:06After 16 years without a revision, Budget 2027 raises personal tax relief from RM9,000 to RM12,000.
00:14Finance Minister to Datuk Sri Amir Hamzah Azizan says some 5.16 million taxpayers will pay less tax,
00:22offering households more breathing room as living costs remain a concern.
00:27But how much difference will this savings make after paying for housing, food, education and caring for ageing parents?
00:35And how can the government deliver meaningful relief while funding public services and reducing the deficit?
00:41To discuss this, we welcome So Liang Seng, Head of Tax at KPMG to the studio.
00:46I want to say thank you very much for joining me. Definitely this is one of a surprise budget.
00:50But firstly, maybe So, can you share with me, talking about the tax relief and reductions,
00:57we can say that government is increasing the individual tax relief from RM9,000 to RM12,000
01:02and reducing personal tax relief to 1% for selected M40 income tax ban.
01:08But looking at also KPMG's statements, estimate that around 5 million taxpayers could benefit from additional disposable income up to
01:16RM1,600.
01:19Firstly, so share with us, how does this make a difference?
01:24Yeah, thank you, Nina. Good morning.
01:26I think to me, number one, this is a meaningful relief, the way how I say.
01:31But of course, we've got to look at the realistic of it, what it can actually achieve.
01:37Now, you look at the current M40 group.
01:42They are the one that paying quite a fair bit of, I would say, or earn quite a fair bit
01:47of income.
01:48But at the same time, they also have quite a huge or significant commitment.
01:52So, to me, the difference for such introduction of this relief, it at least gives some extra money into the
02:02pocket, the way how I say.
02:04But of course, it's a welcoming move after 16 years, with the increase from RM9,000 to RM12,000, and
02:12also the 1% reduction.
02:13And that itself can actually relieve, I would say, the M40 group category.
02:20But whether it's completely resolved, a reduction of the cost of living, I would not think so, but at least
02:28a portion of it.
02:30But do you think that this material improved purchasing power in a bit, other than cushioning the impact of rising
02:37cost of living?
02:38I would say, yes, at least with this additional so-called money into the pocket, they can actually help this
02:46group of M40 to actually spend more.
02:49Not only that, they also sponsor them for some of these costs they have a need to commit, you know,
02:57in terms of housing loan, in terms of children's education.
03:01In some, family would have ageing parents as well.
03:05Let's take a look at the fiscal also, which the government is targeting a lower fiscal for GDP 2027, 3
03:12.3%, down from the projected of 3.5, 3.3 to 3.6 in 2026.
03:19At the same time, it needs to fund public services and manage living costs and sustain economy.
03:25And the main question is, can the government realistically deliver more assistance to household and business while reducing the deficit?
03:33Help us understand this situation.
03:36Yeah, I think in this case, the way how I look at it, the two actually go hand in hand,
03:41you know.
03:42From that fiscal perspective, what is important from the policymaker perspective, there are improvement or areas that the government can
03:53continue looking at it.
03:55While the deficit of 3.3% I think is in the right direction, but don't forget, the government will
04:02still have to continue funding for education, infrastructure, and also supporting certain group of vulnerable.
04:09Now, from that angle, what is important in my view is government should also look at how can they close
04:18the gap in terms of stop any wastage, in terms of close the tax gap, and also improve in terms
04:29of compliance from that perspective.
04:32And so, where you should find the fiscal space? Is it subsidy rationalisation, better tax collection, or is it spending
04:39cuts or a broader tax space without placing a disproportionate burden on ordinary Malaysians?
04:46Now, in my view, I think we should start looking at how can we make the compliance a better initiative.
04:54Because when we talk about having a compliance versus increased tax rate, for example, increased tax rate is just merely
05:04collecting more taxes.
05:05But the question is, is that the right direction? When we look at a better compliance thing, it can also
05:13cover some of the perhaps shadow economy, and this can actually encourage more taxpayers, especially compliance taxpayers, continue to contribute,
05:26you know, in terms of paying the right amount of taxes.
05:30If you can say, you can say, make compliance a better, then increasing the tax rate, that would be much
05:34better.
05:35But what trade-offs should Malaysia expect if revenue falls short of projections?
05:42Right. To me, I think the government, if it really comes to that stage, will have to reassess their priorities.
05:51And the question is, can we actually look at reducing some of the not-so-urgent expenditure, perhaps, you know,
05:58And at the same time, it's also looking at areas where the government really need to close the tax leakages
06:08or the revenue leakages from that perspective.
06:11Then what can they do more in terms of reducing those gaps?
06:16Yeah. I think perhaps tax digitalisation is one of the efforts.
06:21And there's also about GST, SST, where there's a renewed discussion also about incorporating selected GST features into the existing
06:29SST framework.
06:31But honestly, tell us, GST versus SST, is Malaysia ready for reform in tax?
06:36That is always the most debatable question.
06:40But I think in my view, before we even touch on whether GST or SST is a better tax,
06:46Maybe we should look at from the tax ecosystem, you know, the design of the tax system.
06:52If I were to take SST, for example, there are a lot of comments talk about cascading tax.
06:58Now, how does it happen?
06:59So this is the part where you talk about the sales tax being imposed on those purchases,
07:04And that ultimately may end up at the final cost of the particular product.
07:08Whereas GST design, another part of it is looking at the input tax credit mechanism that ultimately businesses are able
07:18to offset,
07:19You know, against those taxes that they bear during purchases with the final tax collected from the sales on that
07:26manner.
07:28So the issue will be, of course, recently I think our Honourable Prime Minister did mention to say that,
07:35Well, need to do a study about it, I think that is a welcoming move,
07:39Because we really need to actually have a room to study what is the acceptable feature in the GST to
07:47be incorporated in the SST.
07:49We should not rush into that.
07:51I think we should look at this reform more from the pragmatic perspective,
07:56And also how can it actually provide a fair tax to the consumer.
08:04And it must be workable to the businesses, but at the same time, it also has to be sustainable to
08:11the government.
08:11That is a very important element, workable and sustainable.
08:15But also, taking a look, before talking about reformation, we take a look at the tax ecosystem as for now.
08:20But looking at the tax ecosystem, especially we want to improve it moving forward.
08:23So what can we learn from GST experience that a lot of policy makers should consider before applying to new
08:31consumption of tax reform?
08:33Yeah, that's a very good question.
08:35To me, I will look at, I think, three lessons that we can learn.
08:39Number one, we should actually look at the guideline to make it more simpler, easy to understand.
08:45Number two, please perhaps give enough time for businesses to prepare.
08:50And the third one, to me, is very important.
08:53How is the refund mechanism to be in place?
08:57I think these are the three key lessons that I would say.
09:01But whatever is the lesson that we want to learn from there,
09:05the other important part is that while we are talking about GST refund and all that,
09:13the messaging, the communication to the right people,
09:18when there's changes in terms of goods and services tax, for example,
09:24effort got to put in to see how can we make it clear to the public,
09:29which are the goods and services that are being affected, number one.
09:32The other one last point to me, I think it's also important.
09:35How do we then protect the lower income group from the introduction of the GST in the future?
09:43I think these are the two that as long as communication that you can put across clearly to the raya
09:49and the trust will be built, then I think it make it easier in terms of the implementation later on.
09:55Talking about protecting lower income group is very important because they are one of the vulnerable group.
10:00So it's probably a bit harder or a bit difficult to maybe achieve the compliance framework.
10:07But Budget 2027 reduces the tax rates for eligible micro, small and medium enterprises,
10:13with the government estimating that around 300,000 businesses could benefit and save up to RM6,000.
10:21So is a tax reduction with this skill enough to change business from decision making for cost operations,
10:30financing constraints, and digitalization expense to cover, and also compliance requirements.
10:36How is it so?
10:37I think to me, again, I would say this is a very positive move with this reduction.
10:44What is important is whether this SME group would make use of this reduction and invest into the right component.
10:52Whether this saving that they get from here, they can actually think of what to invest in terms of training
10:59of the staff
11:00or perhaps in terms of upskilling of the technology that they may have and whether they want to invest more.
11:09That is more important rather than just collect the tax saving once off.
11:14So if they can actually put into or translate this saving into the right component,
11:21then I would say that this will provide a very meaningful kind of benefit for the long term for the
11:29SME.
11:30So I think you also have to look at which group that we are targeting.
11:35When you're talking about SME group, yes, this could be some of the initiative that they should be looking at.
11:41But perhaps there could also be specific sector that may require special assistance, for example.
11:48And that would be the targeted assistance that government can consider.
11:52In my view, I think both initiatives are very important because we are targeting a different taxpayer group.
12:01So the response from the different group is that matters, actually, in my view.
12:07Other than tax relief, tax reductions rate, it's also, we're looking at the incentive that also help a lot of
12:13businesses.
12:14And for budget also enhances incentive for global services hubs, green investment and early stage technology businesses,
12:21including a provincial 5% tax rates on qualifying income from certain global services hub activities.
12:29But the main question, how should Malaysia measure the success of all of this incentive?
12:33Yeah, I think to me, we should not measure by looking at how many investors that come to Malaysia or
12:42even to the extent of the announcement of how much investment that people have put in.
12:49In my view, what is very important is what Malaysia can gain from this investment.
12:55I think the right question from my perspective is, does this investment actually translate into a better skill, transfer of
13:04skill, for example, a better knowledge transfer, a better technology transfer?
13:11And what is important is at the end of this incentive, will all these investors continue to stay in Malaysia?
13:19I think that you mentioned about the enhanced global hubs, services hub, which I think that is a very good
13:29initiative to promote or strengthen the qualifying income for new companies,
13:35in particular, the activities of in the regional activities.
13:41So, this is something that, from Malaysia's perspective, it is very useful.
13:46So, this introduction on enhancement, I think, come in very timely from that perspective.
13:53And also talking about tax, we cannot forget also about e-invoice, digital tax, tax compliance and e-invoice.
14:00Malaysia is strengthening the digital tax administrations as it seeks to improve compliance and reduce revenue leakage.
14:07But, however, business, particularly the smaller ones, smaller firms, still have to manage the cost, processes and risks associated with
14:16meeting their tax obligations.
14:17And we know that the smaller and medium enterprises pay the same as the big corporations.
14:23So, is the tax system becomes more digital?
14:26How can the government close the compliance gap without turning legitimate business into administration enforcement target?
14:33Yeah, tax digitalizing, to me, I think this is very necessary.
14:37When we look at it from a Malaysia long-term perspective, we want to have this digitalization effort to be
14:46a long-term and that include taxation.
14:48I agree that a large company would have this manpower or investment to manage it.
14:55It is a smaller one that perhaps may need further support.
15:00Now, for that, I think very important, the indicator here is, how do we want to make some of this
15:07solution be more affordable?
15:12To answer your question, the other part that can help all these small businesses could be,
15:18the government can actually consider, make the guidelines clearer, you know, don't have so many ambiguity in terms of guidelines.
15:28And also, the other part is, how do we reach out, that means, assistant to this taxpayer as and when
15:35they require clarification.
15:38So, when you talk about compliance, I think this is some of the initiatives that we can actually lend our
15:44support to the smaller group of companies.
15:47And we can see all of this initiative is to ensure that all businesses, corporations, firms in Malaysia can ease
15:55their financial pressures
15:56and even push them to have a more high-value competitive growth.
16:02But the ultimate test, what will success look like in 12 months for all of this?
16:09For me, I think what is the indication is, looking at the budget team, very important whether, from the household
16:18perspective,
16:19has they actually able to improve the household financially?
16:24That's one important.
16:24Number two, I think when we look at businesses, can such a reduction in the businesses ultimately provide businesses the
16:33avenue of investing more with the tax saving?
16:38And also, the third one, I think I may want to touch on fiscal in terms of, though, such relief
16:46that have been given,
16:47how does that actually translate into maintaining, the government maintaining the fiscal sustainability?
16:54So, I think, to me, these are the three indicators that I would like to see in the next 12
16:59months, perhaps.
17:01The test now is turning tax relief into meaningful results.
17:06And definitely, Budget 2027's success is measured by what Malaysia feel more after money left after bills,
17:14better job, and even stronger public services.
17:17Again, I would say thank you very much to Soh Liang Seng, Head of Tax and KPMG, for joining us.
17:21Hope to see you again and discuss more future of the tax future in Malaysia.
17:25And definitely, all of this discussion will be featured in astroawani.com and across all social media platforms.
17:32And hence, this is the end of Niaga Awani.
17:35As for next, we will continue Budget 2027 that will be discussed in Parliament at 10am.
17:42So, that's it. For Niaga Awani, I'm Nina Roseman. See you next time.