when I read this election angpow from Najib administration, a busload of thoughts passed through my mind.
Najib proposes flat 15pc income tax to lure back talent
UPDATED @ 11:56:32 AM 12-04-2011
By Lee Wei Lian April 12, 2011
KUALA LUMPUR, April 12 — The Najib administration is hoping to lure Malaysian professionals working abroad with a flat income tax rate of 15 per cent for 5years under the Returning Experts Programme (REP).
The prime minister said today that the new 15 per cent transitional income tax incentive will be introduced alongside other incentives for returning Malaysian experts.
“I certainly hope these various changes will encourage more Malaysians working abroad with their varied experience and expertise to return and play an active part in our country’s economic transformation,” Najib announced this morning to gasps of surprise from delegates at the Invest Malaysia conference here today.
Other changes in store include limiting the tax free incentive for two cars under the REP to locally assembled vehicles.
Malaysia is considered one of the most badly affected nations by brain drain and the number of Malaysian migrants rose by more than 100-fold in a 45-year period, from 9,576 Malaysians in 1960 to 1,489,168 Malaysians in 2005, according to the World Bank which warned that a lack of human capital is a “critical constraint in Malaysia’s ambition to become a high-income economy.
In an effort to plug the talent leak, the Najib administration launched the Talent Corp last year which is tasked to lure back the Malaysian diaspora and scout for foreign skilled professionals.
Najib said that the Talent Corp will be taking the lead in the REP and has revised the programme parameters and qualifying criteria which will be announced in full at a later date.
“I would like to announce today that the incentive package has also been revised with immediate effect and I know that the Talent Corp will be providing details later,” he said.
I think 1Malaysia administration has failed to address the real reasons for the great brain drain, or "trouble drain" in Najib's dad's case according to Lee Kuan Yew.
I won't go into those areas where too much has been about, and will continue to be written about :lack of equal opportunities, deficiency of outdated and obsolete social re-engineering approach, deficiency of non-meritocracy, deteriorating quality of life due to safety issues, lack of maintenance culture, haphazard town planning, poor public delivery system, racism, lack of "fun factors" etc.
My other contention is:
1) why such an abrupt announcement, i.e. a few days before Sarawak election, to the extend that Talent Corp will have to "iron out the details later"? I don't think the returnees are entitled to vote, nor Sarawakians who are probably too engrossed with NCR or land premium issues.
2) it is mind boggling to have 2 or 3 tax rates in the spirit of 1Malaysia. (1 for you and me, another for Iskandarians down south and now the NEP rejects.
3) Malaysians who stay behind will feel being classified as second class. The returnees are not doubt high calibre individuals with high income. Take a look at our income tax scale rates for individuals. The higher the income, the higher the tax bracket. That is social justice.
Unless Malaysian administration stop and recovery leakages, curb inefficiency and corruption; and able to lower tax rates for all, I do not think it is fair to continue to impose relatively high taxes on the people, when Malaysia have 38% petroleum tax while countries with no such nature's gift like Hong Kong and Singapore are charging considerably lower tax rates.
4) Wrong cure applied. The returnees no doubt needed to be encouraged but the main reason they went overseas are probably due to open competition hence freedom to compete and excel. So long as the outdated non-meritocracy culture and systems remain, the young, dynamic and ambitious will have second thoughts for themselves and their family.
Unless Malaysian environment is proven to be as open and fluid as talent magnets i.e. Singapore, Hong Kong or the United States, perhaps not many would like to give up what they are having now.
5) The 15% tax rate and tax free incentive remind me of the strategy of offering pittance goodies before a by-election to the less knowledgeable and grey matter. What works for hillbillies may not work as well for top notch high flying professionals who know a thing or 2 about operating conditions in Malaysia.
The 5 year window period do not offer consistency. Does this signal some drastic changes after 5 years? Would the high calibre returnees tolerate significant and unascertained changes in 5 years' time? The short term mentality in this abrupt change in policy might result in these returnees taking a 5 years tax break in Malaysia and move away after that. They are highly capable and mobile individuals with ambition and ability to adapt.
Just what sort of market research/strategic thinking did 1Malaysian administration did to come up with this until now unclear programme I do not know.