TAX incentives that are no longer relevant should be reduced or eliminated to make the tax system more effective, said prominent economist Prof Jomo Kwame Sundaram.

Malaysia has been offering such incentives for decades, he said, and these have outlived their use.

“You have to remember that Malaysia has been offering tax incentives since the 1950s. And the original reason may be good but the conditions have changed.

“What is the point of offering a tax incentive for something which is not quite relevant any more but the companies are still taking advantage of? Just dealing with that is one way, without even changing the tax rates,” said the former member of the Council of Eminent Persons.

Many companies have been enjoying tax exemptions for one reason or another, hence such exemptions can be reduced or eliminated, he said.

“Many companies are exempted from paying taxes for one excuse or another. So just reducing or eliminating those exemptions makes sense.”

It makes sense to give a company that is investing more a tax break, as they are enhancing the country’s economic capacity by doing so, he said.

“My point is that if, for example, a company is investing more… you might want to give them a tax break because they are investing to enhance the economic capacity of the country. 

“But if they are taking the money to give some bonuses to the CEOs and directors and whatnot, do you think that is useful for the economy?

“Basically, what you want is smart taxation. You want to have economic incentives but meaningful economic incentives, not just rewarding people because they happen to have inherited a lot of properties and so on. But we want to reward entrepreneurship, you don’t want to discourage entrepreneurship.”

Touching on the upcoming Budget 2020, he said the government should look at measures to counteract downward pressures and allow the bottom 70% the room to spend.

Income translates into spending for the lower-income group, he said.

“You give an additional ringgit to a rich person, the rich person is not going to spend the extra money but if you give the additional ringgit to the poorer person, the person is likely to spend that money.”

Malaysian workers, he said, have seen their wages supressed because of the availability of foreign workers.

“I Ithink we have a situation here where the major determinant of what is in the people’s hands is income or wages. So ordinary people, think about wages.

“Right now, the situation is not very happy. And we have for decades now a situation where a large presence of foreign workers basically serves to suppress the wages of Malaysian workers because it’s always so easy to get a foreigner to do twice as much work as a Malaysian for less money.”

He reiterated that it’s essential for the government to adopt an expansionary budget. – September 25, 2019.