Malaysia

Economists, calling Malaysia’s system regressive, suggest tax hike as necessary to fund 12MP projects


Finance Minister Datuk Seri Tengku Zafrul Abdul Aziz told Parliament last week that government debt would be estimated at over RM1 trillion by the end of the 12th Malaysian Plan’s term in 2025. — Picture by Yusof Mat Isa
Finance Minister Datuk Seri Tengku Zafrul Abdul Aziz told Parliament last week that government debt would be estimated at over RM1 trillion by the end of the 12th Malaysian Plan’s term in 2025. — Picture by Yusof Mat Isa

KUALA LUMPUR, Oct 14 — Three prominent economists would like to see the federal government raise taxes as a way to fund development and fix an economy devastated by Covid-19.

Support for new taxes, particularly on Malaysia’s wealthy and businesses that have profited massively during the height of the pandemic, have been floated in Parliament and public platforms in recent days.

The idea has become the centrepiece of a policy debate around how to fund the RM400 billion of development expenses under the five-year 12th Malaysian Plan, tabled in the Dewan Rakyat last week.

Former Asian Development Bank economist Jomo Kwame Sundram, one of three panelists speaking at an online forum organised by the Malaysian Institute of Economic Research tosay, said tax reform was long overdue.

“The best time to raise the tax rates is now because it won’t pinch,” he said.

“Most companies except for a few who should be [slapped with a windfall tax] are not making big money and so they don’t feel the tax rate.

“And there’s another compelling reason: the world tax regime is changing,” he added.

In June, the G7 nations agreed in principle to enforce a minimum corporate tax threshold of 15 per cent in a bid seemingly aimed at targeting the world’s richest multinational corporations that have been accused of tax avoidance.

The agreement, touted as a game changer that could rein in capital flight, may see governments enforce plans to make multinationals pay more tax in countries where they operate, rather than where they are headquartered.

Jomo said the G7 pact, along with other developments, signalled a global appetite to fix tax avoidance, and that Malaysia should act on it.

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“The Treasury secretary to US President Joe Biden has already announced a corporate tax for Google so if you give a tax break, it’s nothing, they still have to pay the tax just that they have to pay it to somebody else,” he said.

“So what’s the point of giving them a tax break? We really need to think about our tax strategy overall.”

Muhammed Abdul Khalid, the economist who led various key researches on poverty and inequality, said the Malaysian tax system is regressive, and a reflection of poor fiscal management.

At the forum, he criticised the government’s hesitancy to impose a windfall tax on industries that profited during the pandemic, such as the rubber glove industry.

Some of the sector’s leading players, like Top Glove — which is the world’s largest producer of rubber gloves — made record profits of up to RM7.5 billion for the financial year 2020 on the back of surging demand for surgical gloves as public health authorities around the world scrambled to treat Covid-19 patients.

“We have a serious issue in managing our finances. Our tax system is regressive, our spending is also regressive. And when we talk about funding the 12MP, the RM400 billion has to be borrowed and it has to be done optimally,” Muhammed said.

“For example, we can impose a windfall tax on selected industries and we have been doing this for the last 20 years, why is it that some other industries are special?” he asked.

Finance Minister Datuk Seri Tengku Zafrul Abdul Aziz told Parliament last week that for the 12MP, government debt would be estimated at over RM1 trillion by the end of the plan’s term in 2025.

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Nungsari A. Radhi, an economist and former Balik Pulau MP, told the forum incurring debt isn’t the problem. Instead the concern should be on the plan’s lack of clarity about how the money would be spent.

“We have to borrow, there is no question that we have to borrow. But while we are borrowing and we are incurring debt for future generations… we have to make sure that we are spending the money to generate growth,” he said.



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