This article first appeared in The Edge Malaysia Weekly on November 1, 2021 - November 7, 2021

IT most certainly came as a surprise to many during the tabling of Budget 2022 when Finance Minister Tengku Datuk Seri Zafrul Aziz announced a “prosperity tax” to be imposed on certain companies next year.

The government proposed that for the year of assessment (YA) 2022, companies with taxable profit exceeding RM100 million would be subject to a “one-off” 33% tax rate while taxable profits below RM100 million would continue to be charged a tax rate of 24%.

Notably, the one-off 33% tax rate will not apply to small and medium enterprises (SMEs).

Tax consultants say this is a smart move by the government to beef up the national coffers in the short term, given the huge budget amounting to RM332.1 billion for 2022.

Deloitte Malaysia tax leader Sim Kwang Gek says the “prosperity tax” should be easier to implement than a windfall profit levy on certain sectors where market price may be lacking.

Nevertheless, the big question is how much additional tax revenue will be collected from such a measure.

At this juncture, tax consultants say a fairly substantial amount could be collected, although it is likely to affect only a small group of companies.

“Those that will be affected will be companies that are in Malaysia to access local consumers. I don’t think foreign direct investments in the country will be affected much, given how many of them use Malaysia as a manufacturing hub and get tax incentives for it,” muses EY Asean tax leader and Malaysia tax managing partner Amarjeet Singh.

At the end of the day, he says, it would depend on the magnitude of the tax incentives received by these companies, as it could help cushion taxable profits.

KPMG head of tax Tai Lai Kok says sectors that could be subject to the prosperity tax in YA2022 include financial institutions as well as exporters. “This additional tax collected can be channelled back to those who need it, but there should also be disclosures on how much was collected and where it will be going to,” he adds.

Amarjeet sees the healthcare sector and power companies potentially affected by the prosperity tax as well.

As for plantation companies, they could be taxed twice if they are also subject to a windfall tax levy on high crude palm oil prices. Some believe, however, that plantation companies could be excluded from the prosperity tax if they are subject to the windfall tax levy next year.

That remains to be seen and would require further clarification from the government.

Under Budget 2022, the proposal is to standardise the levy at 3% across the country, where Peninsular Malaysia is currently subject to a 3% levy whereas Sabah and Sarawak pay a levy of 1.5%.

It will also increase the threshold of the palm oil price, which is subject to a levy, from RM2,500 per tonne to RM3,000 per tonne in Peninsular Malaysia and from RM3,000 per tonne to RM3,500 per tonne in Sabah and Sarawak.

While there seems to be no other country in the world that has imposed such a “one-off” prosperity tax on corporations, tax consultants see it as being in line with the global trend of imposing tax on larger corporations.

Sim points out that Argentina has implemented a one-time extraordinary emergency contribution on personal assets held by individuals as at Dec 18, 2020, where a rate of 2% to 3.5% will be applied to the value of those assets exceeding US$2.4 million (RM9.9 million).

“The one-off tax is intended to help cover the costs of the pandemic, pay for medical supplies, assist SMEs and support student scholarships, social developments and natural gas projects. The one-time levy is expected to collect US$3.5 billion from about 12,000 individuals — about 0.02% of the population,” she says.

Nevertheless, the Malaysian Institute of Certified Public Accountants (Micpa) appears to be against the one-off tax.

“Although this is just a one-off imposition, on grounds of fairness and equity, this one-off prosperity tax is a rather off-tangent initiative. Micpa is of the view that the imposition of this one-off prosperity tax is uncalled for, especially when stability in whatever form has yet to be attained as the country moves into recovery mode,” it says in a press statement.

This move will certainly beef up federal government coffers to some extent, but what is important is a mid- to long-term solution for tax revenue reforms, says EY’s Amarjeet. “This is an interim measure to help reduce the fiscal deficit of the country. But in the mid to long term, there needs to be a transformation of the tax administration by digitising it, and also to broaden the consumption tax base.”

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