The Malaysian government has recently revised the Malaysia tax system in line with recommendations made by the United Nations World Intellectual Property Organization (WIPO). The amended law now allows for taxation of companies engaged in activities aimed at improving quality of life in Malaysia. This includes activities related to education, health care and business development. In other words, this means that there will be a tax on companies that engage in industries that contribute to Malaysia’s improved quality of life. The purpose of such tax is to ensure that the benefits derived by these companies are not channeled into illicit activities.
The Malaysian tax system has long been considered a highly inefficient and unfair system due to exemptions that favor certain businesses over others. Such exemptions include privileges extended to members of the House of Representatives (MPA), members of the House of Council (MHK), members of the Senate and even some private individuals. These measures have, however, been criticized by the international community as well as by watchdog organizations for their lack of transparency. They argue that it is difficult to determine which industries get the concessions. A key recommendation from the United Nations is that the Law and Regulation of Corporate Tax should be subjected to universal rules and standards.
The revision to the tax rate was accompanied by revisions to the existing taxation laws in other states of the Asean region. These changes were meant to simplify the tax systems in the area. The Law and Regulation of Corporate Tax (LRCT) enjoy a high degree of popularity in the region. With the new measures coming into force, however, the popularity of the LRCT is likely to erode given the relatively limited number of covered entities under its jurisdiction.
Other measures included in the reforms have also had a limited impact on the tax rate for Malaysia casinos. These include amendments that eliminate the tax deduction for gambling losses and an increase in the rate for dividends. Both of these decisions were aimed at reducing the profitability of the Malaysian casinos and increasing the amount paid in taxes. They have, however, resulted in some operators choosing not to use the loss carry back mechanism when paying dividends.
On a broader scale, changes introduced in April 2021 resulted in the scrapping of a previously unpopular regulation whereby a portion of all slot and poker machine winnings were subject to tax. This measure, first introduced in the UK in 2021, was seen as a direct competitor to the UK’s successful casinos, which in turn had been under pressure from London casinos over the growth of online gambling across the city. It was, therefore, seen as a threat to the UK’s casino industry and lead to a number of casinos being closed in the UK. The Malaysian government later negotiated a deal with the London Casino Industry Association in which the tax on winnings was waived for five years. This has, however, only recently expired and new legislation is now being debated which could potentially see the law change again.
Some argue that the tax changes have actually helped the Malaysian casinos by ensuring they have more cash available to them in terms of revenue and therefore can continue to develop their games and services. These arguments are bolstered by the fact that the levy does not apply to the full value of any winnings. Instead, it only applies to a percentage of the casino’s gross take. This percentage, based on the volume of customers that the casino has, means that smaller operations do not have to shoulder as large a burden as larger ones. In other words, even if a smaller casino is having difficulty generating enough income to pay its taxes, it will be able to cope with that burden thanks to the increased volume of transactions it is able to facilitate.
Despite these arguments, there are also a few concerns that the Malaysian authorities should address before they move forward with introducing a new, higher tax. For starters, they should ensure that the taxation structure is compatible with the functions and needs of Malaysia as a whole. Increased taxes may force many of the country’s smaller gambling establishments to close down, but even those that remain may have to charge their customers higher prices so that they make up for the lost revenue. Simultaneously, the increased costs could force gaming operators to reduce the range of games offered or to introduce different kinds of casino games in order to cover their bases.
Given all that’s at stake for the Malaysian casino tax, both sides of the argument may seem like very valid points of view. With that said, it’s probably best for the Malaysian authorities to take a step back and realize what their motives are in introducing this particular tax. After all, it’s not exactly “they” that’s being affected by the increase in the tax rate, it’s gamers like you and me who’ll have to foot the bill. What’s more, we’re the ones that ultimately benefit from the increases in taxation; so why do we need the government to dictate where we can spend our money?
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