KUALA LUMPUR (Nov 1): Veteran tax expert Dr Veerinderjeet Singh said he is surprised that the government has moved so fast to propose the removal of tax exemption for foreign sources of income.

Describing it as a knee-jerk reaction, he said: “I would like to encourage the team at the Finance Ministry to reconsider this particular point on the removal of the exemption on the foreign source income.”

“This has been one of our attractions in terms of a destination and territorial score,” he said in a virtual 2022 Post-Budget Dialogue organised by the Malaysian Economic Association (MEA) on Monday.

In Budget 2022 announced on Friday (Oct 29), it was proposed that income tax be imposed on residents in Malaysia with income derived from foreign sources and received in Malaysia, from Jan 1, 2022. 

Veerinderjeet , who is the non-executive chairman of Tricor Services (Malaysia) Sdn Bhd, said there could be other ways in dealing with the European Union’s action to add Malaysia to its "grey list" of non-cooperative jurisdictions for tax purposes.

“Maybe we can relook at it from a point of view of substance requirement for some of the types of income that we are interested in. And I know that the interest lies in the areas of interest income and royalty income,” he said.

Last month, the EU updated its list of non-cooperative jurisdictions for tax purposes, with Malaysia being among the economies added to annex II of its list, which reflects the status of commitments made by cooperative jurisdictions to implement certain tax governance principles.

This is believed to have come after revelations from the Pandora Papers disclosed how the rich and powerful benefited from offshore companies in tax havens evading their obligations of paying tax. 

Veerinderjeet noted that Malaysia would sometimes take its time to respond to such matters.

He questioned as to why Malaysia acted fast this time, claiming that Hong Kong, which was also added to the list, “would preserve its territorial system”.

On the impact of the proposed action, he said: “My own understanding of this is that whatever foreign income… that one brings back is taxable.

"But if you have the foreign tax that you have paid on that income, you can then confirm that, and claim a credit against the additional tax that Malaysia will impose. In most cases, it will neutralise and you may not have any additional income,” he added.

On whether the removal of the tax exemption was a revenue generating measure, Veerinderjeet said: “Not really. Because in the past, we really did not generate that much revenue, which is why we took away this particular exemption.

“But now, with the EU breathing down our necks, we decided to change it.”  

See more Budget 2022 highlights here.