IRB promotes investment through tax incentives

 

The single market will have a positive impact on the country in the sense that the economic integration of the region will offer Malaysia new opportunities and possibilities. It will create the basis for growth for the region and closer cooperation among member countries on tax administration, such as exchange of information and audits. With respect to Malaysia, I believe that we will benefit from this, as more international companies would like to come and invest in our nation. You know that when there is an increase in investment there is an increase in tax collection. Even though ASEAN can be seen as a single market, each individual country has to promote itself in order to attract more FDI. For example, political stability, infrastructure and tax incentives are key factors for FDI attraction. 

 

From the IRBM we are committed in facilitating the entrance of foreign investors. We offer tax holidays to those companies that comply with our local Tax Law. Malaysia offers a competitive tax rate for international companies. We want to make sure that we create a business friendly environment. We simplify procedures and reduce red tape for investors. 

 

 

The current administration played a key role in the transformation of the country based on competitiveness. The country created the Economic Corridors in order to develop the country in an inclusive manner. It is very important to attract investment not only in the developed regions of the country. The tax authority also contributes to this cause by promoting investment through tax incentives. The IRBM plays an important role in advising the government in its effort to attract FDI as well as by contributing to shaping a strong and reliable institutional system.

 

IRBM promotes good governance practices by implementing a rigorous check and balance system throughout the decision-making process. Moreover, IRBM counts on a committed 11,000 workforce that has contributed the achievement of revenue goals and objectives. We strongly believe in transparency and good governance as two crucial enablers for attracting FDI and thereby spurring economic growth. 

 

 

Tan Sri Shukor: As the tax authority we want to achieve a stage in which people pay taxes voluntarily. We have to persuade people to present their income statements and pay accordingly.

Our job is to facilitate the collection procedure. The era of ICT helps a lot in this sense. By implementing new technologies people are able to pay their taxes easier than it was before. For instance, we started with e-filing in 2004. The results of this motion have been very successful; around 3.2 million taxpayers are already utilising our e-filing platform. Because of our technology, people are able to pay electronically and if there are any refunds we can do it online as well. In addition, for those who do file their taxes electronically we give them more time to do it by extending the filing day.

We want to encourage people to do e-filing because it helps our process and saves us time. Within 30 days you can get your returns refunds through e-filing while it takes 90 days through regular paper filing. In addition, we are launching mobile filing as well in order to provide an addition service to everyone and make the process even more accessible. 

 

 

Our tax incentives are key drivers for international investors. For instance, we offer five-year tax exemptions to some sectors that want to come and invest in Malaysia. During this tax holiday companies don’t have to pay income taxes. However, they must comply with all the requisites that apply to this tax holiday. For example, they have to establish their operations in the promoted areas, or be in a promoted sector. In addition, the dividends that companies have to pay to shareholders are also tax-free.

There are some sectors that are not eligible for tax holiday but they may be eligible for tax credit or income tax allowance. We have double deduction in R&D or companies that re-invest into the country. 

 

Our tax law is very transparent and we work efficiently with other government bodies to avoid irregularities. Again, IRBM and the government work together very closely to improve good governance and transparency. For instance, we cross-reference our records with the department of transportation in order to see if any person or company’s income statement matches their assets, in this case, registered automobiles.

For example, if there is a case that needs to go into investigation we will present all the evidence to the person being investigated. If that person is not satisfied with the amount we present, they can file a case in court and let a third party decide over their case. In this way we aim to offer strong checks and balances and strengthen Malaysia’s institutionalisation. 

 

During the 70s our country was mostly agricultural but nowadays we have already passed the industrialization process and got into the knowledge-based economy. By 2020 we want to be a developed nation with high-income. This is why Malaysia has established its 6 pillars to ensure a high skilled labor force, of which human capital development is the 3rd. IRBM is a knowledge organization; we promote training and knowledge amongst our team. We truly believe in education as a catalyst for change.

Therefore, IRBM has taken several initiatives to support the national framework. We aim, for instance, to upgrade the skills and capabilities of the existing workforce by implementing individual and talent development programmes and we have established several learning initiatives. Additionally, we attract new talent with competitive remuneration packages, flexible work force, and promotions. Finally, we aim to create more flexibility in IRBM’s workforce with work from home programmes and better use of technologies. 

 

 

Our tax incentives are key for attracting FDI. For example, we offer international companies that want to establish their OHQ (Overseas Headquarters) a special tax incentive. When you look at the tax package offered by Malaysia you can tell that we are a business-friendly country. We offer, for instance, very good services for fund management, and corporate financial advisory. Moreover, Malaysia offers clear procedures for OHQ status and application. Many people look at Singapore.

However, it is important to look at the whole picture when we compare Malaysia with Singapore, and one cannot just look at the tax rate per se. First of all, you should take into account the exchange rate. Second of all, we provide more assistance and services. Even our personal income tax is one of the best in the region. 

 

Prior to year of assessment (YA) 2003, an OHQ status company established by multinationals (MNCs) in Malaysia was taxed at concessionary rate of 10% for 5 years (instead of 28%). An additional 5-year extension was granted when the company met the requirement under the law. The objective of this incentive is to manage and provide a full range of services to its office or its related companies in more competitive ways in terms of technical expertise in the financial and corporate management from Malaysia.

Companies must comply with some conditions though, such as being locally incorporated under the Companies Act 1965 (Act 125); having a minimum paid-up capital of RM0.5 million and a minimum total operating expenditure of RM1.5 million per year; appoint at least three senior professionals or management personnel; and serve at least three related companies outside Malaysia.

 

 

Taxation is an important part of the fiscal policy. Our contribution to the Federal Government’s coffer is between 50 to 60% of the total. If we are not efficient enough to collect taxes the country will be in big trouble. We invite people to come to Malaysia, to take advantage of the tax exemptions that we have and join us in our effort to develop the country further.

By having an efficient tax authority the government can work intensively in developing the national infrastructure and investing in human capital. Our effort can be seen in our numbers. Between 2010 and 2011 we increased our collection by a historic high of £4.2 billion. And as of 31 December 2013, 238 companies have been approved the OHQ status by the Government of Malaysia.

Improving communication with taxpayers, changing the organization structure, and making it more efficient helped us achieve these records. We are aware that every person that works and earns money here in Malaysia contributes to the development of the country. Our political stability, our macroeconomic standards, and our human resources make us a very interesting option for foreign companies that look into ASEAN. With respect to IRBM, we have drastically changed our image. We are a friendly organization that wants to contribute in the promotion of the country. We need to tell the world that our tax authority provides world-class service.