Cut out wastage, corruption before introducing new taxes, say economists

01 Aug 2023 07:41pm
Prime Minister Datuk Seri Anwar Ibrahim delivering his opening remarks at the two-day National Tax Conference 2023  - Bernama photo
Prime Minister Datuk Seri Anwar Ibrahim delivering his opening remarks at the two-day National Tax Conference 2023 - Bernama photo
KUALA LUMPUR - The government should cut out wastage, leakages and corruption before introducing new taxes or raise taxes to increase its tax revenue, say economists.

Malaysia University of Science and Technology (MUST) professor Geoffrey Williams said Prime Minister Datuk Seri Anwar Ibrahim is absolutely right to emphasise that tax increases should be a last resort and not a default option.

He said raising taxes will burden households and companies, while broadening the tax base means that the middle income group (M40) and the bottom 40 per cent of income earners (B40) will pay more.

"It also makes Malaysia less competitive against other countries and it is a disincentive to work, invest or innovate.

"Before we (consider) raising taxes, we need to cut out wastage, leakages and corruption,” he told Bernama in response to Anwar’s tax remarks earlier.

Anwar, who is also the Finance Minister, said earlier today that Malaysia’s taxation policies must be guided by two fundamental principles, namely, to tax when it is absolutely necessary, and it should not burden taxpayers, be it individuals or the business community.

Echoing Williams’ views, Socio-Economic Research Centre (SERC) executive director Lee Heng Guie said the government need to find ways to improve its tax revenue efficiently.

This includes addressing leakages, ensuring that everyone pays a fair tax, that there is no tax evasion, and spending wisely on sectors which are productive to the country and the economy.

"A good tax system should be simpler, efficient and equitable. It must be able to encourage economic growth, boost competitiveness, attract businesses and investments, as well as reward productivity to encourage entrepreneurship,” he said.
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However, Lee opined that the government should not proceed with the luxury tax mentioned in the Budget 2023. Although there is no update about it thus far, he believes it will impact the tourism industry negatively, making Malaysia less competitive compared with countries that do not have it.

"We have to look into a cause and effect analysis,” he said.

On whether the Goods and Services Tax (GST) would be out of the picture in Budget 2024 since the premier had already said "tax only when necessary” and it must "never burden”, Lee opined that there are a lot of leakages that can plugged in the current revenue base, such as the consumption tax where there is a gap in revenue collected from the GST against the current sales and service tax (SST).

Budget 2024 is scheduled to be tabled on Oct 13, 2023.

Despite calls from different quarters to reintroduce the GST, or introduce a GST-SST hybrid system, he believes the government or the Finance Ministry’s fiscal committee will have studied the differences, as well as the pro and cons of the different regimes.

Williams, on the other hand, opined that for the moment, the GST should not be considered a priority until the fundamental housekeeping has been completed.

"We do not know if GST is necessary, or how much needs to be raised, until we have removed the inefficiencies in the system. So we do not know the proper rate yet,” he said.

According to Lee, Malaysia’s tax revenue accounts for about 12 per cent of the size of Malaysia’s economy of nearly RM1.73 trillion, which is considered as a very narrow tax base. -Bernama