Business groups give thumbs down to corporate savings tax idea

 

An MPs suggestion for a tax on undistributed company profits or earnings has met resistance from trade associations. (File pic)

PETALING JAYA: Several business groups have slammed an opposition MP’s proposal for an annual corporate savings tax of 2.5% to be imposed in the name of wealth-sharing.

SME Association of Malaysia secretary-general Chin Chee Seong called the proposal ridiculous and unreasonable, as companies already faced relatively high tax rates of 15% to 24%.

He said many small and medium-sized enterprises depended on their reserves to survive bad times.

“These savings typically serve as a financial safety net for unexpected challenges, such as a pandemic, natural disasters, or the anticipation of rising business and financial costs. Furthermore, these funds are often earmarked for future business expansion,” he told FMT.

The corporate savings tax proposal was made by Permatang Pauh MP Fawwaz Jan who told the Dewan Rakyat the tax should be imposed in line with Islamic principles of wealth-sharing.

The tax would be imposed on company profits or earnings set aside as savings, rather than being distributed as dividends to shareholders.

Fawwaz said 30% of the tax collection should be given to the people as direct cash aid, 12.5% towards repayment of student loans from the National Higher Education Fund and the remainder for other purposes.

Malaysian International Chamber of Commerce and Industry president Christina Tee said that cash handouts fall within the purview of the government and NGOs, not businesses.

It’s not fair to impose such taxes on businesses as the corporate tax is supposed to have covered such government expenditures, she said.

She also said that the proposed tax would result in a situation of double taxation because the savings from a company’s profits are already subject to corporate taxes.

Economist Barjoyai Bardai of Universiti Tun Abdul Razak said the proposed corporate savings tax should only be implemented on a voluntary basis and with incentives to sweeten the deal for companies to participate.

“So when they contribute that 2.5%, they will be given a corporate tax exemption of maybe 3% for example, or 5% even,” he suggested.

Malaysia University of Science and Technology professor Geoffrey Williams said the proposed tax would change the way businesses made decisions in a positive manner, by inducing them to find other ways to use their surplus rather than pay the tax.

“First, the surpluses could be invested into value-added activities. Second, they can be given as dividends, on which shareholders pay tax. Third, they can be held as surpluses but taxed to raise revenue. In any of these cases, the money goes to good use,” he said. - FMT