MALAYSIA needs to widen its revenue base to be able to continuously beef up the nation’s healthcare, education and social protection, the World Bank said.

Lead economist (poverty and equity) Dr Matthew Wai-Poi suggested that the country consider a broader personal income tax base, and implement a broad consumption tax with limited exemptions.

“One of the ways to broaden personal income tax base is to expand the sources of personal income,” he told Bernama on the sidelines after the launch of the 28th World Bank Malaysia Economic Monitor (MEM) report, titled “Raising the Tide, Lifting All Boats” in Kuala Lumpur today.

The MEM is the World Bank’s biannual flagship publication on Malaysia’s economic and development progress. 

Also present were Economy Minister Rafizi Ramli and World Bank Country Manager for Malaysia, Dr Yasuhiko Matsuda.

Matthew said taxes, transfers and subsidies helped to alleviate poverty, while education and health spending further reduced inequality.

He said in 2019, taxes, transfers and subsidies has reduced national poverty slightly by 0.9 points, while education and health spending further reduced inequality by 6.5 points.

Nevertheless, he said taxes and spending in the country are not as progressive compared to those in other upper-middle-income countries.

Matthew said currently, about 90% of personal income tax in Malaysia is paid by the top 10% of the T20 income group, roughly equivalent to 10% of their income. 

The next 10% of the T20 group only pay 3.0% of their income, although they can afford to pay more, he said.

As for health taxes, he suggested a 0.4% of GDP hike in the tax on tobacco and alcohol.

“It’s not huge, but together that is nearly 1.0% of the GDP,” he said.

Meanwhile, World Bank senior economist (macroeconomics, trade and investment) Shakira Teh Sharifuddin said Malaysia’s decline in revenue between 2012 and 2022 was one of the steepest recorded among its peers. 

She said the lower revenue base is somewhat inadequate to lift the economy.

“In 2022, poverty rate was at 6.2% versus 5.6% in 2019, while 490,000 households still live below the average national poverty line,” she said.

The fight against poverty is one of the unity government’s aspirations to eliminate hardcore poverty in Malaysia.

In the 12th Malaysia Plan’s mid-term review, RM1.5 billion was approved for programmes and projects that can generate incomes for target groups in an effort to eradicate hardcore poverty.

Prime Minister Anwar Ibrahim, who is also finance minister, said cash aid and the Rahmah programme will carry on and improved to ensure the continued upgrading of the social security network. – Bernama, October 10, 2023.