Kitty Miv, Editor
17 October, 2019
Well I think that given all that's currently going on in the world at the moment, we'll stick with the relatively safe topic of budgets, don't you? Not least because there were a lot of them this week, delivered in quick succession; clearly the 'back to school' spirit is in evidence for various governments around the world, with Greece, Ireland, Malawi, Malaysia and Nigeria among those countries keen to show off their new stationery and schoolbooks (or rather, spending and taxes...)
On October 7, the Greek Ministry of Finance presented its 2020 Budget to Parliament.
Featured in the Budget, (which included measures recently announced by Prime Minister Kyriakos Mitsotaki) were:
- A reduction in the 28 percent corporate tax rate to 24 percent in 2020;
- A five percentage point reduction in the dividend tax to five percent in 2020;
- A reduction in the lowest personal income tax rate from 22 to nine percent on the first EUR10,000 of income;
- A gradual five percent reduction in social security contributions for those in full-time employment; and
- A three-year suspension of value-added tax for the construction of new buildings.
One of the main events this week, though, was the delivery of the Irish budget, which had been trailed for several weeks beforehand, with the Irish government mindful of their proximity to the Brexit whirlwind, and their need to mitigate against the significant economic and political uncertainty created by that.
Indeed, describing the budget as having been "developed in the shadow of Brexit," Ireland's Finance Minister Paschal Donohoe steered clear of income tax cuts but did announce improvements to a number of small business tax incentives and an increase to the carbon tax.
Donohoe tabled the 2020 Budget on October 8, 2019, basing the plans on the assumption that the UK will leave the EU on October 31 without a deal (which is not necessarily a done deal. Or a done not deal, as the case may be...!)
Donohoe stressed that, in preparing for no-deal, the Irish Government sought to ensure that it "has the necessary resources at its disposal to meet the impact of Brexit, while keeping our public finances on the credible and sustainable path they have been on since 2011."
In this context, Donohoe said that he "will not commit to across the board personal tax cuts." He explained that to do so "at this time of economic uncertainty" could "potentially undermine the sustainability of our public finances," adding that "the unfunded tax cut of today is the unwelcome tax increase of tomorrow."
The Budget did however contain a number of tweaks to existing tax incentives targeted at SMEs.
Donohoe said that the Budget would allow the Key Employee Engagement Programme (KEEP) "to apply to company group structures as well as allowing for greater flexibility for employees to move within such structures." The rules would be adjusted "to allow for part-time and family-working arrangements for KEEP employees." KEEP is designed to help SMEs in Ireland compete with larger firms to attract and retain employees, by providing a more "advantageous" tax treatment of gains arising on the exercise of qualifying share options acquired in SMEs.
The Budget also contained changes to the Employment and Investment Incentive (EII), a tax relief that can be used by trading companies to attract equity-based finance from individuals. It will allow for full income tax relief to be provided in the year of investment, rather than being split over years one and four as had previously been the case. The annual investment limit for the incentive will be increased to EUR250,000 and a new EUR500,000 annual investment limit will be introduced for investors who are prepared to invest in EII for 10 years or more.
Donohoe additionally announced enhancements to Ireland's research and development (R&D) tax credit, with a focus on SMEs. The credit will be increased from 25 percent to 30 percent for micro and small companies, and an improved method of calculating the limit on payable credit will be introduced, he revealed. A new provision will allow micro and small companies to claim the credit on qualifying pre-trading R&D expenditure before commencing to trade. Before a company begins to trade, the credit will be able to be offset against VAT and payroll taxes.
Turning to the subject of climate change, Donohoe said that there is cross-party support to increase the price of carbon from its current level of EUR20 to EUR80 per tonne by 2030. He expects this to raise an additional EUR6bn, which would be "invested in decarbonizing the economy while also protecting the most vulnerable from the increases in living costs associated with the carbon tax."Rather than imposing a larger increase in any one year, though, Donohoe announced that the Irish Government will increase the tax by EUR6 as a first step.
The Finance Minister additionally announced "a two-stage process that will increase tax compliance and thereby increase tax yields... focused on ensuring the correct amounts of income tax and Universal Social Charge (USC) are paid on the income from distributions of Irish resident companies." The dividend withholding tax (DWT) rate will be increased from 20 percent to 25 percent from January 1, 2020, and from January 1, 2021, Revenue will introduce a modified DWT regime that will allow a personalized rate of DWT to be applied to each individual taxpayer.
Also on October 8, 2019, but delivered to slightly less fanfare, Nigerian President Muhammadu Buhari announced the Government's 2020 Budget, which included an increase to the value-added tax rate from five percent to 7.5 percent.
Alongside the rate hike, a number of items will be made exempt, including:
- Brown and white bread;
- Cereals including maize, rice, wheat, millet, barley and sorghum;
- Fish of all kinds;
- Flour and starch meals;
- Fruits, nuts, pulses, and vegetables of various kinds;
- Roots such as yam, cocoyam, sweet and Irish potatoes;
- Meat and poultry products including eggs;
- Salt and herbs of various kinds; and
- Natural water and table water.
Currently, the VAT Act exempts pharmaceuticals, educational items, and basic commodities.
Last but not least, Malaysia set out its plans for new tax incentives in its 2020 Budget, which are intended to attract investment from multinationals and innovative firms. It also confirmed plans for a digital services tax from next year, and announced a new top personal income tax rate.
The Government revealed that it is undertaking a comprehensive revamp of its existing tax incentive framework, with new regimes to be in place from January 1, 2021. For instance, MYR1bn (USD238m) worth of incentives will be granted to large multinationals in high-tech, manufacturing, creative, or "new" industries. To qualify, companies would need to invest at least MYR5bn and create 150,000 jobs over five years. Further, the Government is to offer another MYR1bn in tax breaks to export-focused businesses.
Companies engaged in the electrical and electronics industry that will support Malaysia's transition to 5G technology and other infrastructure modernization projects will benefit from an income tax holiday for 10 years. Existing companies that have exhausted their reinvestment allowance will benefit from a new special investment tax allowance on new investments, the Government said.
Malaysia also intends to extend until 2023 the accelerated capital allowance and the capital allowance for automation equipment in the manufacturing sector on the first MYR2m to MYR4m incurred on qualifying capital expenditure. Further, this will be expanded to include the services sector on the first MYR2m incurred on qualifying expenditure in the years of assessment (YAs) 2020 to 2023.
The tax exemption for fund management companies managing Shariah-compliant funds and Sustainable and Responsible Investment (SRI) funds, and the tax deduction on the cost of issuing SRI Sukuk will be extended for another three years, until YA2023.
The concessionary income tax rate for SMEs, of 17 percent (18 percent in 2018), will be extended to income up to MYR600,000, up from MYR500,000. To access this higher threshold, the SME must not have paid-up capital of more than MYR2.5m or annual sales of more than MYR50m.
The Budget also confirmed that the Digital Services Tax will be implemented from January 1, 2020. It will cover services including software, music, and video downloads and digital advertising. Registration by foreign service providers opened on October 1, 2019.
Until next week!
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