Have a special purpose tax instead, says head of think tank

 

Monies from an SPT can be channelled into a specific medical fund that will allow hospitals to immediately enhance their medical resources, including getting more ICU beds, says the head of think tank. (Facebook pic)

PETALING JAYA: Putrajaya should consider introducing a Special Purpose Tax (SPT) of 5% on taxable profits of corporations above a specified threshold, the head of a think tank has suggested.

Carmelo Ferlito said this would see monies channelled into a specific medical fund that would allow hospitals to immediately enhance their medical resources, including getting more ICU (intensive care unit) beds and medical equipment, to manage the huge number of Covid-19 cases.

Crucially, he said the SPT should be imposed for a two-year period for the assessment years 2021 and 2022 and removed after that.

Ferlito said such a taxation system was needed now given the fiscal deficit that has increased substantially due to the allocations required for the government to manage the Covid-19 health crisis.

Carmelo Ferlito.

“However, as the funding is needed now, as an interim measure, we suggest that corporations which generated taxable profits exceeding the specified threshold for fiscal year 2020 be encouraged to contribute to the specific medical fund this year,” the chief executive officer of the Center for Market Education(CME) told FMT.

“They should also be given a specific tax deduction if the corporations decide to provide assistance in kind.”

Ferlito sees this proposal as part of a more comprehensive tax reform which includes lowering income tax, introducing a multi-layered goods and services tax and implementing a progressive capital gains tax.

Ferlito was speaking to FMT following a warning by economists that investors could be put off by the introduction of any capital gains tax on shares and a windfall tax for companies that enjoyed huge profits during the pandemic.

Should the government decide on implementing a SPT, Ferlito said it was crucial for it to make clear the commencement date, the objective and the end date.

“Failure to consistently do so will lead to presumptions of a permanent corporate tax rate increase and that will have an effect on foreign investors, who may become concerned about further changes being made to the general corporate tax regime.”

On Wednesday, deputy finance minister Yamani Hafez Musa said the government was studying the implementation of a capital gains tax on shares and a “one-off higher tax rate” on companies that have raked in “extraordinary profits” during the pandemic.

The proposal marks a shift in the finance ministry’s stance on windfall tax.

Last November, finance minister Tengku Zafrul Aziz had said a windfall tax on companies that enjoyed extraordinary profits during the pandemic would send the “wrong signal” to investors. - FMT