DAP’s 42 Members of Parliament (MP) will collectively oppose a government Bill to withdraw the tax exemption on foreign-sourced income (FSIE) from next year onwards in the upcoming debate next week.
In a statement on Saturday (11 December), DAP secretary-general Lim Guan Eng said the government’s decision is uncompetitive, unfair, and harmful to long-term investment attractiveness and the nation’s financial interests.
“Not only will this withdrawal of FSIE will result in capital flight and reductions in capital inflows, it will also be unfair to individuals who are compelled to work overseas due to better pay prospects and greater opportunities.”
“The withdrawal of FSIE includes remittances for dividends of companies and individuals, interest income and rental or gains on the disposal of properties overseas and possibly for children working overseas sending home living expenses for their old parents.” he said in the statement.
Under Budget 2022, the government has proposed to impose tax on income derived from foreign sources and received in Malaysia from 1 January next year. This would mean that all foreign-sourced income, whether from business or employment or in the form of dividends, royalties, interest, or rental that are remitted into the country will be subject to Malaysian tax.
This tax exemption has been in place since 1998 for companies and since 2004 for individuals, to encourage people to remit their foreign-sourced income into the country.
“Clearly, the withdrawal of the FSIE will do the opposite.” Lim said.
However, Finance Minister Tengku Zafrul Aziz previously said this proposal to remove the tax exemption should not be taken as a negative move that would discourage foreign direct investments (FDIs).
He said Malaysia being an open market economy does not depend only on tax incentives to attract investments, but also depend on the comprehensiveness of the country’s tax system in accordance with international tax standards.
Meanwhile, Lim also questioned the finance ministry’s insistence to push through proposal, which the ministry estimates to rake in RM1.2 billion in revenue by taxing foreign-sourced income.
“Is the extra RM1.2 billion in revenue worth losing out to our neighbouring countries with a more attractive tax regime?
“The real concern is companies that had repatriated an annual average of RM27.8 billion in investment income from both direct and portfolio investment back to Malaysia between 2010 and 2020, compared with RM7.5 billion the decade before, may no longer do so.” Lim added.