BUDGET 2012 aims to reduce the budget deficit from the estimated 5.

4% of GDP for 2011 to
4.7% for 2012. The deficit reduction will represent a big step towards a balanced budget, and
bring Malaysia closer to the pre-2008 deficit levels (2008 budget deficit was 4.8%).
This will have a positive effect on the perception of Malaysia, which is especially important in
view of the uncertain global economic outlook for 2012.
The budget has been termed an "election budget,¨ and in some ways that is true with a little
something for everyone. While there was a lot of discussion before the budget about the
imminence of the good and service tax (GST), no new taxes were announced. Neither was
there a significant increase in any of the existing taxes, be it income tax, duties, sales tax,
excise, service tax or stamp duty.
The exception was the proposed increase in real property gains tax (RPGT) rate from 5% to
10% for gains on disposals of real property interests held for two years or less. However, this
was less a revenue-generating measure than it was a tool to help curb speculation for
properties, noting that RPGT revenue for 2011 is expected to amount to a modest sum of
Ìn order to achieve the goal of a 4.7% deficit, without new taxes and direct measures to
increase taxes, there will be a tendency to focus a lot more on how to increase the
effectiveness and efficiency of the current tax administration; how to make the most of the
existing tax regime.
To quote the Prime Minister: ". an effective and efficient tax administrative system is a
precondition to widen the tax base and increase compliance by tax payers. Apart from
strengthening the ÌCT systems of revenue collection agencies, enforcement measures will be
enhanced through the implementation of integrated operations with other relevant agencies.¨

This points towards a greater focus on strategic tax enforcement with:

» Greater use of ÌCT ÷ to elicit more systematic and targeted analysis of taxpayer profiles
and history to better identify potential non-compliance; and
» More cooperation and sharing of information between regulators ÷ to increase the
efficiency tax audits.
There are also several proposed legislative changes to the tax legislation which enhance the
powers for tax enforcement, including:
» To provide the director general of Ìnland Revenue (DGÌR) the power to disregard any
information which is provided late, past the time specified in the DGÌR's notice demanding
such information. Such information will also be barred from being used to appeal against a
tax assessment, before the special commissioners of income tax or court. Presumably this
proposal is to ensure a more speedy finalisation of taxes, but the implementation of this
proposal needs to be even-handed and reasonable, lest taxpayers' basic rights are unfairly
» To extend the DGÌR's powers of access to computerised data ÷ taxpayers must provide
information such as the password, encryption code, decryption code, software or hardware
and any other means required to enable comprehension of the computerised data.

» To require specified information on payments made to agents, dealers and distributors, to
be disclosed in a prescribed form and provided to the payees for tax purposes. One reason
for this is to facilitate better monitoring of income reporting.
» To permit the DGÌR to impose tax payments where a taxpayer has failed to furnish a tax
return or where the DGÌR has reason to believe that a return is incorrect. The scheme is
novel in that the DGÌR will have the power to collect taxes even before a tax assessment is
These measures are consistent with the trend observed in the last decade where the Ìnland
Revenue Board's powers of access, enforcement and collections are enhanced. The
challenge is to ensure the right balance is struck in the exercise of these powers by the
relevant authorities.
Ìt would not be complete to mention several positive developments for taxpayers in the area
of tax administration including:-
» Compensation of 2% on the amount of tax refunded late by the ÌRB, from year of
assessment (YA) 2013; and
» Reduction in the time for tax audits from six years to five years, from YA 2013.
This is an inclusive budget and has the interests of many needy sections of our society. The
achievement of the goals would partly rely on an efficient tax administration, and it is hoped
that more details on how these proposals will be implemented, in the interest of transparency
and greater certainty for taxpayers.

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