MALAYSIA'S MODEST CORPORATE TAX CUT

Malaysian Prime Minister Abdullah Ahmad Badawi announced another 1% cut in the rate of corporate tax in the Malaysian government budget. In addition, several other measures have been introduced to boost the investment, revenue and capital formation.

By 2009, the corporate tax cut proposal is expected to be reduced by an additional percentage point down to 25 percent. Despite a tax cutting "slow-motion" of slashing the corporate tax rate by 1 percent annually in the last two years, the aggregate corporate tax burden is estimated to reduce. The rate fell by 1 percent to 27 percent this year, and will bring about a further 1 percent cut next year.

Tax news reports that: "...announced a generous package of tax breaks for the investment industry in an attempt to consolidate and build upon Malaysia's position as one of the leading centers for Islamic finance. As a result of the budget measures, fund management companies will be given income tax exemption on all fees received for Islamic fund management activities until the 2016 year of assessment. Furthermore, the government's pension scheme, the Employment Provident Fund (EPF), will channel about 7 billion ringgit (US$2 billion) to be managed by Islamic fund management companies. Also, these companies will be permitted to be 100% foreign-owned, and will be able to invest all their assets overseas."

In addition to a mere modification of the tax system, Malaysian government further deregulation stock-broking licensing procedures by allowing the entry to the companies that can source the investment funds.

However, the new tax proposal seems to be discriminatory to international investors as government decided to slash the entry barriers only to investors from Arab countries and the Middle East. Among other measures, a a 50% stamp duty exemption on the purchase of a house worth less than 250,000 ringgit (US$72,000) has been launched.

Malaysia's currently ranks 48th internationally and 8th regionally in economic freedom, scoring significantly better than Slovenia.