TAXING the rich is not the way to fill government coffers that have taken a hit from the economic slowdown brought about by the Covid-19 pandemic, tax experts said.

Instead, they suggested that the government look into new sources of income and existing tax policies and incentives.

They proposed a development tax on tech giants with a presence in Malaysia such as Amazon, Netflix, YouTube, Google and Facebook.

Koong Lin Loong, managing partner of Reanda LLKG International chartered accounts said, “robbing the rich to help the poor” is counter productive and could deter foreign and domestic investments.

He said the government should consider imposing a 3-5% development tax on companies that make more than RM1 million in profits.

“I don’t recommend taxing the wealthy as this will undermine investors’ confidence. We can’t just choose to tax the rich every time the country needs money,” Koong told The Malaysian Insight.

“A development tax for a period of 12 months and boosting the real estate market should instead be considered to increase the government’s income.”

Koong said 74% of the country’s tax revenue comes from direct tax on corporate or personal income, oil, and real estate and 26% from indirect tax on stamp duty, domestic consumption, customs duties, and imports.

“Real estate sector should also be left alone. Raising the stamp duties on properties will not help the government earn more income.”

To generate more income from development tax, Koong said the government should provide a business-friendly climate.

“When local and foreign companies perform well, it will have a spillover effect on the labour market.”

He also suggested that the government push for special Covid personal tax relief to increase disposable income to boost consumer spending .

“Malaysia must increase revenue by reducing expenditure. The country is losing a lot of money to tax evasion.”

The Finance Minister has launched a special voluntary disclosure programme to encourage taxpayers to voluntarily come forward to declare taxes that have not not been paid, underestimated or erroneously reported to Customs.

Last week, former prime minister Najib Razak proposed a temporary recovery tax targeted at the wealthy for the next two years to fill depleted government coffers.

He also suggested that the government tax tech giants Amazon, Netflix, YouTube, Google, and Facebook, which have profited from a presence in Malaysia but which have never paid taxes in the country.

Better fiscal management

Chua Tia Guan, tax and financial consulting head at Asia Business Centre, said some forms of taxes to boost Covid-19 recovery over the next two years are reasonable while others are not.

Windfall tax, tax on luxury apartments, and stock trading tax are difficult to implement, he said.

The inheritance tax, meanwhile, was abolished in 1991 and it would be silly to bring it back for two years, he said. Furthermore, probate takes longer than two years to settle, he added.

Instead, he said the government should consider raising taxes on high-income individuals and windfalls.

“Some companies have struggled during the pandemic while others have profited. The windfall tax should be imposed on those who doubled their profits during this period.”

Higher personal income tax would affect only a small group of people, he said.

Chua suggested three reforms for better fiscal management.

He urged the Finance Ministry to draft a fiscal responsibility law to improve governance, transparency and accountability for government revenue, expenditure, debt and fiscal risk management, accounting, economic forecast and mid-term fiscal framework, among others.

The ministry should also look for new sources of income, reduce dependency on oil-related income and overhaul existing tax policies.

The World Bank has reported that Malaysia continues to lag behind in attracting foreign investment and is far from becoming a high-income nation.

“In the past, in order to attract foreign investment and create job opportunities, too many tax incentives were given but they did not have the desired effect. This must be revised.

“The government must also effectively combat tax evasion and the special voluntary disclosure programme is a step in the right direction.”

Chua said the government should also review its procurement and subsidy mechanisms to ensure every sen is well spent.

In the last few years, tax revenue has only been enough to pay the government’s operating expenditure and there was heavy reliance on borrowing.

“Taxation is not the way to solve the country’s financial problems. Fiscal management reform is.” – September 25, 2021.