THE tabling of our national budget has always been able to draw much attention. I remember when I was young, my parents would monopolise the television to watch it live.

Like any other typical Malaysian family, they were mostly concerned about two things: how much money can we get from the government this year, and are there any tax incentives from which we can benefit.

In the coming budget season, everyone is looking forward to seeing if there’s anything in it for them, and then there’s this unpopular and controversial topic that most Malaysians do not wish to hear about: tax reforms.

One of the debates again is whether there will be any new tax. Deputy Finance Minister Yamani Hafez Musa has recently said the government is looking into implementing capital gains tax and a one-off windfall tax on businesses that performed extremely well during the pandemic, with the latter having then been ruled out by Finance Minister Tengku Zafrul Tengku Abdul Aziz.

Although the additional revenue of the proposed new tax was earmarked to fund recovery programmes for selected groups affected by the pandemic, it has been criticised from stakeholders, investors and some economic experts.

Even former finance minister Lim Guan Eng is also against said proposal, saying that it will make Malaysia less competitive, and his DAP party will oppose any proposal for capital gains tax, including inheritance tax.

The irony is the statement came from a former finance minister whose government revised the real property gain tax to be levied on properties that are disposed of after five years, which is taxed 5% for locals and 10% for foreigners.

Instead of introducing new taxes to add to the government’s revenue, DAP suggests that the government should put utmost priority in rescuing the people with financial aid and not the other way round.

Undeniably it has been especially rough since the pandemic outbreak, businesses winding up, higher unemployment and underemployment recorded, the majority of households experienced a decline in income.

As movement restrictions gradually ease and the economy is seemingly on track for a rebound, many have high hopes for the upcoming national budget, more incentives for the people and more direct fiscal injection from the government to spur economic growth.

There are even calls from some private sectors to temporarily exempt sales and service tax (SST) for certain spending to stimulate the economy.

Everyone has their own wish list for the budget, but let’s face it, where does that leave our country if there’s more spending and less revenue collected?

As stated in the pre-budget statement released by the Ministry of Finance, revenue collection in both direct and indirect tax are expected to decline this year due to the pandemic and the movement restrictions, which affected the people’s income.

It’s well expected that the government will unveil another expansionary budget, maybe even so for years to come, if there’s no substantial increase in revenues collected.

Tax reforms are obviously needed in our country.

Should our country implement capital gains tax? Most people make a living through receiving salary or wages, and at the end of the day, we pay income taxes based on how much we’re earning, or corporate tax if you’re running business activities.

Then there are people who profit through investments, which the gains are non-taxable. Imagine a scenario where a person earns RM10,000 in salary and wages (or through business activities), versus another person who gains the same amount of RM10,000, but through investing in the stock market.

Is it fair that only the former’s income is taxable, while the profit/gain from investors are not subject to taxation?

Forms of gain tax hardly burden the people as they are generally taxed upon realisation, it’s akin to taxing your income where a portion of your gain derived from selling off assets, such as stocks and bonds, is taxed.

There could also be measures where, if you suffered a loss in your investment portfolio, the loss could be used to offset the gains so that only the net gains are taxed. The idea of capital gains tax should not be dismissed just because it does not make people ‘feel good’.

Instead, we can look into how to implement it to ensure transparency on how the tax revenue is collected and used to grow our country.

Many would argue that this moment is not the right timing of performing a tax reform, be it introducing capital gains tax or reintroducing the goods and services tax (GST).

When introduced in 2015, GST gained much negative press until it was abolished three years later by the then Pakatan Harapan government.

Since the reintroduction of SST, the revenue collected from SST in the form of indirect taxes amounts to only half of the total collected during the GST era. Did we take a step back by doing so?

In the aftermath of the pandemic, we can see a wider gap in wealth inequality, where people from more vulnerable socio-economic groups experience a much greater impact than the wealthy.

Therefore, there’s a need for proper tax reforms to redistribute the wealth to reduce inequality.

It is time to switch from relying on taxing employment and business income, to taxing consumption. Reintroduction of GST should be considered, as it’s a more effective and transparent consumption tax model.

The reason it failed is because the people don’t feel benefited from its implementation. That could be changed if the additional revenue collected is to be channelled back to aid the public.

If and when our country manages to reduce our dependence on direct taxes, then we are probably able to lower the corporate tax rate to encourage quality foreign investors to come to our shores, and also prevent capital flight.

There is a need to broaden our tax base. The government could also gradually introduce wealth tax, which is levied on holdings on assets when the time is right.

We should not view taxing the wealthy and aiding the less fortunate as a form of penalisation to the rich.

A country’s economy generally benefits directly if the low- and middle-income earners have more disposable income to spend, money would flow into the economy rather than being hoarded by the rich.

However, due to the political instability in the recent past, I doubt that the ruling government will introduce a new tax at this juncture, it would almost be a political suicide.

Yet nothing comes for free, the reality is we can’t expect the country to keep providing aid to the less fortunate if there’s no major reform measures taken. – October 4, 2021.

* Kelvin Lee is a member of Agora Society. Both a dreamer and realist, he is constantly figuring out ways to balance the two. He believes that by defying the norm, one can pave the way for a better future.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.