Mahathir, once powerful, is snubbed by his Malaysian party
International Herald Tribune
SEPTEMBER 12, 2006
Seth Mydans

KUALA LUMPUR The Malaysian government announced its first cut in corporate tax in nine years Friday and said it would increase development spending by 31 percent for 2007 to help spur economic expansion as slowing global growth threatens exports.

Prime Minister Abdullah Ahmad Badawi, who is also the finance minister, said the corporate tax rate would be cut to 27 percent in 2007. The rate will fall to 26 percent in 2008, he said in his budget speech in Parliament.

The government has kept the corporate tax rate unchanged since 1998, when it cut the rate to 28 percent. Abdullah, who succeeded Mahathir bin Mohamad as prime minister in 2003, refrained from reducing taxes in his previous two budgets as he sought to balance them by reducing public spending.

Higher revenue from petroleum taxes and dividend payments from the state-run oil company Petroliam Nasional will help fill government coffers next year, allowing Abdullah to both increase development spending and reduce taxes.

Government revenue from taxes, dividends and other sources is forecast to rise 13.5 percent to 120.6 billion ringgit, or $32.9 billion, this year, as faster growth and improvements in efficiency have lifted corporate and individual income tax collection while higher oil prices have driven tax and dividend payments from the state oil company.

Total revenue is expected to rise 11.8 percent to 134.8 billion ringgit next year, with oil-related revenue accounting for 40 percent of the total.

Oil-related revenue is expected to account for 45 billion ringgit, or 37 percent of total revenue, in 2006, up from 30.9 billion ringgit, or 29 percent, last year. The petroleum income tax is estimated to increase by 40 percent to 20.4 billion ringgit this year.

Taxes account for more than 70 percent of the Malaysian federal government's total revenue.

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