KUALA LUMPUR: A progressive tax system that reduces leakages and enhances compliance will be crucial in the upcoming Budget 2025 to ensure Malaysia's tax base continues to support sustainable growth, according to the Chartered Tax Institute of Malaysia (CTIM).
CTIM president Soh Lian Seng said several tax initiatives introduced in 2024 Budget have the potential for further enhancement.
He added that the scope of e-invoicing must be continuously clarified, ensuring businesses can capture all relevant transactions.
"The current substance-based capital gains tax (CGT) exemption, limited to three years should be made a permanent fixture. In addition, CGT losses should be allowed to offset income within the same year without restriction.
"A comprehensive review is needed for the service tax framework applied to the logistic sector and the free zone exemption must continue based on the physical place of service/substance," he said in a statement.
Soh proposed introducing a multi-year tax framework (MYTF) in 2025 Budget to enhance investment certainty, in line with the government's priorities to accelerate Madani Economy reforms.
He added that the framework should outline clear tax policies and rates for a fixed period, such as three to five years, to provide a stable and predictable tax environment for businesses and investors.
He also noted that a well-designed MYTF should cover key areas such as tax policy objectives, tax legislation reforms, tax administration and compliance, and tax incentives and exemptions.
Meanwhile, Soh said the current classifications of B40, M40, and T20 need to be redefined and a detailed study should evaluate whether the current individual-based income tax model should transition to a household-based model.
"The personal relief for individuals (currently RM9,000) and dependents, including reliefs for medical treatment for parents, spouses and disabled individuals needs to be reviewed to better reflect the rising cost of living.
"Particularly, the relief for disabled individuals (fixed at RM6,000 since 2005) requires immediate revision, with CTIM proposing that this be doubled to mirror current economic realities," he added.
CTIM also recommends allowing tax service fees, including those beyond tax filing, to be fully deductible as expenses under the Income Tax Act 1967.
He said CTIM also proposes a comprehensive study to assess the feasibility of a unified tax system that combines transactional and consumption taxes.
"The study should involve industry consultation with the stakeholders and consider key learnings from the previous goods and services tax (GST) 1.0," he said.
Soh said CTIM expects a carbon pricing or tax mechanism to be announced soon for implementation.
The government should consider proposals that provide tax incentives and financing options for businesses particularly the micro, small, and medium enterprises (MSMEs) to adopt renewable energy, green building practices and energy efficiency measures.
He also expects the government to introduce targeted incentives for the MSMEs, such as special concessionary corporate tax rates, as seen with the Forest City Special Financial Zone.
"In addition, we anticipate that proposals may include double tax deductions for green expenses, financing schemes, and digital support for MSMEs," he noted.