Tax Base in Malaysia Narrow?

Many governments have undertaken pump priming measures in 2020 to lift their economies out of lockdown. Globally, the figure suggested is USD12 trillion.

Some results are positive with GDPs showing improvement. Malaysia is in a technical recession. But the concern in any turnaround is the fiscal deficit and national debt. Revenue, for Malaysia, is on a narrow base.

Developing economies have a tax to GDP ratio of around 15, while developed countries average around 40. For Malaysia, it was 12 in 2019 and with Covid it is expected to be 10.6 in 2020 and 11.1 in 2021. Other countries show the following:

 

Country	Tax to GDP ratio
New Zealand	32.7
Japan	31.4
Australia	28.5
Philippines	18.2
Thailand	17.5
Singapore	13.2

 

About 62.4% of 1.25 million companies are registered with Inland Revenue Board (end 2017). Of this, only 7.8% pay taxes. And of the 15 million workforce only 16.5% are subjected to income tax.

Source: https://www.malaymail.com (Bernama pic)

 

So what could be done? GST? That’s not feasible with wide income disparity between T20 and B40, between states and between rural and urban areas. One could widen the scope of the sales tax to include property developers, contractors, utilities, trading companies and others. Other ideas bandied about include inheritance tax, capital gains tax and the windfall tax. All of which require comprehensive study and feedback. Meanwhile, improving income levels and tax threshold are other means to widen the base. Albeit, no one likes tax or death – both of which are certain!

 

Reference:

The tax net, Royce Tan, The Star, 28 Nov 2020