MIER expects tax cuts in Budget 2010

From the Business Times:

CORPORATE and individual taxes are likely to be reduced by one to two per cent in the 2010 Budget, according to the Malaysian Institute of Economic Research (MIER).

The reduction would not affect the government's revenue, MIER executive director Datuk Dr Mohamed Ariff Abdul Kareem said at a press conference in Kuala Lumpur today.

"Since 2010 will be a better year than this year, then shaving off the tax rates may be offset by increased income base. So I don't think it will affect government's revenue," he said when presenting a report on MIER's economic outlook for the third quarter 2009.

Corporate tax is currently at 25 per cent while individual income tax is at 12 per cent for chargeable income exceeding RM35,000 to RM50,000.

Mohamed Ariff said the tax reduction would have positive impact on the economy as well as investors.

Asked whether such a reduction was in preparation for the introduction of the Goods and Services Tax (GST), Mohamed Ariff said: "It could be."

He said GST taxed on consumption and not income, thus providing an incentive for people to work harder and earn more.

"In Malaysia, there is a need for GST because the number of people paying tax is small, so everybody will chip in. Everybody is contributing because everybody is consuming. So the tax base gets bigger," Mohamed Ariff said.

To me, I don't know if MIER has inside information into the PM's agenda, but a tax cut would be fine in tandem with an imminent GST implementation in the next few years. I'd rather not have a tax cut because the huge stimulus needs to be paid down and the only way that is going to happen is through tax revenues.

I doubt that the "future" revenues from the recovery will be enough to sustain. If the recovery is weak, cutting taxes is a fiscally irresponsible move especially considering government revenues took a nosedive this year.