by Ng Say Guat, Executive Director, PricewaterhouseCoopers Taxation Services Sdn Bhd
Malaysia's tax incentives have been among the more successful measures used to attract foreign investments. However, offering fiscal incentives is often not enough – providing an enabling environment to attract more investors is equally, if not more, important.
There is a need to strike the right balance between offering attractive tax incentives and the ease of actually obtaining them, be it simplifying bureaucratic procedures or streamlining various tax incentives under a single authority.
Presently, foreign and local investors face a myriad of Government agencies facilitating the different types of tax and non-tax incentives and licences, which vary with location and industry sector. For example:
- Malaysian Industrial Development Authority (Mida):
- Multimedia Development Corp Sdn Bhd (MDeC):
- Malaysian Biotechnology Corp (MBC):
- Iskandar Regional Development Authority (IRDA):
Additionally, the Finance Ministry (MoF) and the Inland Revenue Board (IRB) play a pivotal role in all these bodies in approving the various tax incentives, as such applications eventually end up in the IRB for final evaluation.
Recognising a fast and efficient set-up environment as an important element that needs to be continuously improved, the Government began to promote a “hassle-free” business environment by centralising certain activities under Mida.
These measures include promoting Mida as a one-stop centre for processing tax exemptions for machinery and equipment in the services sector effective this month.
It was also recently reported that Mida would establish a centre within the Immigration Department to expedite the processing of work permits for expatriates working in Malaysia.
Given that the Government has identified the services sector as a growth catalyst under the Ninth Malaysia Plan, this positive move will, hopefully, help spur the services industry and the economy.
MDeC followed suit as the one-stop centre for prospective MSC companies and this has proven to be successful as well.
We believe MBC will progress in the same mode.
While the relevant authorities should be applauded for their respective initiatives, substantial delays are often experienced in the process caused by the red tape required for the final approval of the tax incentives.
To improve efficiency, the Government may wish to consider giving the various authorities full autonomy to approve the relevant tax incentives i.e. remove the need for MoF/IRB to scrutinise the applications.
With such autonomy, these authorities will genuinely be one-stop centres given full authority to process, evaluate and approve the set-ups, issue licences and granting of tax incentives. The benefits are:
- New set-ups can take off more speedily as tax incentives can now be approved by the same authority, avoiding delays in cross-consultation between authorities.
- The various Government authorities will be able to focus on partnering investors in a more holistic manner to develop the industries and their investments in Malaysia.
Will this move make it too easy for tax incentives to be obtained and subject to abuse?
Unlikely, as we are in a self-assessment tax system and companies would still have to abide by the conditions imposed during the incentive period. Furthermore, self-monitoring usually promotes better compliance.
With an attractive pool of tax incentives combined with a more structured way to facilitate and process all tax incentives, Malaysia would be seen as a more attractive destination for prospective foreign investors.
This will also encourage local investors to continue reinvesting in the economy
Extracts from an article that first appeared in The Star 28 August 2007
