Its secretary-general, Lim Guan Eng, said the party will do so unless there is greater clarity, or a review, so as not to affect hard-working individuals and companies wanting to bring home their foreign earnings.
He said the proposal to withdraw the tax exemption is “uncompetitive, unfair and harmful” to the long-term investment attractiveness and financial interests of Malaysia.
“Not only will this withdrawal of foreign-sourced income exemption (FSIE) 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,” he said in a statement today.
He said 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 to their old parents.
Under Budget 2022, the government proposed to impose tax on income derived from foreign sources and received in Malaysia from Jan 1 next year.
Finance minister Tengku Zafrul Aziz had previously said the proposed removal of the tax exemption should not be taken as a negative move that would discourage foreign direct investments (FDIs).
He said as an open market economy, the attractiveness of the investment ecosystem was not only determined by tax incentives, but also depended on the comprehensiveness of the country’s tax system in accordance with international tax standards.
According to Lim, the withdrawal of the exemption meant that foreign-sourced income, whether from business or employment or in the form of dividends, royalties, interests or rentals remitted into the country will be subjected to tax in Malaysia.
He also said that tax experts had said this tax exemption had been in place since 1998 for companies, and since 2004 for individuals, in a bid to encourage remittance of such income.
“Clearly, the withdrawal of the FSIE will do the opposite,” Lim said.
Meanwhile, he also questioned the finance ministry’s insistence to push through the proposal, saying the ministry estimated that RM1.2 billion can be collected by taxing foreign-sourced income next year.
“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.”