Budget 2008 is a bold step taken by the government to drive the growth rate of the Nation to meet the challenge of globalisation. Without a doubt, the private sector once again will play a key role as the engine of economic development in Malaysia.

With a view to promoting private investment as a catalyst of the nation’s economic growth, several measures have been introduced such as lowering corporate tax rate to 25% in 2009, establishment of the Special Taskforce to Facilitate Business (PEMUDAH) and introduction of a single-tier tax system, to name a few.

The government’s move to reduce corporate tax rate by a further 2% in 2009 to 25% from the current rate of 27% would make the nation more attractive for foreign direct investment. There is a global trend to reduce corporate tax rates, for example, Singapore has reduced its tax rate from 20% to 18% and China from 33% to 25%. Vietnam and Taiwan currently has tax rates of 28% and 25% respectively.

Countries with high corporate tax rates tend to face high net outflow of foreign direct investment and decline in corporate tax revenue with globalisation and increased mobility. In order to remain competitive, in the longer term, a business friendly tax rate should tend towards 15%.

Further, to spearhead the economic growth, the government has provided several incentives to small medium enterprises (SMEs). Amongst others, the government proposes to give SMEs flexibility to pay taxes at the end of a financial year instead of monthly instalments for a period of two years from the date of commencement of operations. This would certainly help to reduce cash flow constraints of SMEs at the initial stage of their operations.

For the complete story, get the latest BusinessToday magazine. Click here to subscribe.