The private sector in Malaysia can now look forward to enjoy a lower corporate tax of 25% in 2009, another one percentage point reduction from the 26% in 2008 and 27% in 2007.

The move announced by the Prime Minister Datuk Seri Abdullah Ahmad Badawi during his speech on Budget 2008, in Parliament, yesterday, would further enhance Malaysia’s attributes as a viable investment location and raise Malaysia’s competitiveness globally.

A single-tier tax system will be introduced from Year of Assessment 2008, whereby profits are taxed at the company level and dividends received by shareholders will be exempted, facilitating the distribution of dividends. A transition period of 6 years will be provided to ensure smooth implementation of the single-tier system.

The new simplified tax system would reduce the cost of compliance and administration experienced under the current system to keep track of taxes paid at each stage. It is also expected to encourage long term investments in equities especially in companies, which declare good dividends.

Malaysian Institute of Taxation (MIT) President, Dr Veerinderjeet Singh in welcoming the new tax system said it would simplify the tax system and was in line with the trend in countries like Singapore and Hong Kong.

As part of the Government’s efforts to encourage public listed companies in Malaysia to become global players, the stamp duty exemption for merger and acquisitions (M&As), which would have expired end of this year would be extended until 31 December 2010. These M&As approved by the Securities Commission must be completed by 31 December 2011.

The exemption which was introduced in 2006 has seen more companies taking up M&A, where in 2006 some RM102 million (US$29 billion) in acquisition deals were done in the country. M&A activities are expected to reach a record high this year with some RM88 billion (US$25 billion) recorded in the first six months of the year, according to Bloomberg.

Chairman of the Federation of Malaysian Manufacturers (FMM), Tan Sri P.K. Yong welcomed the further reduction of corporate tax as well as the single-tier tax system that would simplify the distribution of dividends.

New small and medium enterprises (SMEs) will also stand to benefit from the Budget 2008 proposal, which allow them the flexibility to pay corporate tax at the end of the financial year instead of monthly as currently done where the tax estimates have to be submitted within three months of starting operations.

As the move is to assist SMEs that may face cash flow problem at the initial stages of operations, the flexibility will be for a period of two years from the date of commencement of business.

SMI Association of Malaysia National President, Chua Tiam Wee, in welcoming the new initiative said SMEs would stand to benefit from cost savings and improvement in their cash flow.BrandLaureate Chief Executive Officer, Dr K.K. Johan said the Asia Pacific Brands Foundation was pleased with the assistance to the SMEs as these companies can now utilize their cash flow for expansion instead of relying on bank loans.

Meanwhile, expatriates working for International Procurement Centre (IPC) and Regional Distribution Centre (RDC) can look forward to be taxed only on that portion of employment income attributable to the number of days they work in the country, similar to those working for Operational Headquarters (OHQs) and Regional Offices (ROs). Currently, these expatriates are taxed on the full income received in Malaysia even though they are frequently out of the country in the course of their work