Tax Reform on the Cards?

The Malaysian government should announce how much revenue it is targeting from its reforms according to the World Bank lead economist. A clear target would allow the government to undertake adequate, well-timed, and well-sequenced tax policy. Malaysia has been under-collecting taxes and the government needs to raise more revenue.

To soften the blow on cost of living, the government has pledged to extend cash and other aid. This year, the government is targeting to narrow its budget gap as a proportion of economic output to 4.3% from 5% last year.

The government’s recent efforts to widen the tax base — in the form of the capital gains tax and expanded services tax — is insufficient in addressing the revenue inadequacy. A defined target would also allow the government to better communicate its tax reform decisions with the public and the industry, as it provides perspective to how much additional revenue has to be raised.

Tax collection, as a percentage of gross domestic product (GDP), is projected to rise to 12.8% in 2024 from 12.6% in 2023, he noted. That compares to the regional average of 25%.

Setting revenue targets is a common practice among developed economies whereby they are set based on the country’s structural spending. In an ageing population that would mean related spending such as healthcare will rise as a percentage of GDP.

To “attack” revenue is important and there are several ways, only the political will remains in short supply. The other is to curb expenses especially the operating ones. Unless it is two-pronged, people can see through a government that is all talk but no action!

Reference:

Malaysian govt should announce clear revenue target in tax reform, says World Bank, Izzul Ikram and Luqman Amin, The Edge Malaysia, 23 April 2024