Taxing matters

IRB may do well by applying different strokes for different taxpayers

THE Inland Revenue Board (IRB) is a big contributor to the government coffers. Tax collected by IRB funds more than 50 per cent of government expenditure. But not all Malaysian income earners obliged to pay income tax are paying. There are 15 million Malaysians in one form of employment or other, but only seven million of them are registered with IRB. Of this, only two million pay taxes. Notwithstanding this leakage, the IRB hauled in RM137 billion in 2018, a record year for the board. Imagine the billions that IRB would have collected if the remaining 13 million paid their taxes. This is not for lack of trying by IRB. Perhaps the kind of “trying” may need a little working.

The latest attempt is the Special Voluntary Disclosure Programme (SVDP) — to allow taxpayers to volunteer unreported income, including funds maintained in offshore accounts — that is expected to bring in RM10 billion. Under the SVDP, any income reported from Nov 3, 2018 to June 30, 2019 will be subjected to reduced penalty rates of 10 per cent and 15 per cent respectively. The penalty will be 80 to 300 per cent thereafter. This is well and good, but given its limited resources, IRB may want to take a more focused approach. For example, IRB should apply the full force of the law on those who have not registered with the board, but may want to make it easy to pay for the five million who have done so.

One area IRB can zoom in is the offshore accounts maintained overseas by Malaysians. According to IRB, more than 450,000 such accounts in 57 countries have been identified. SVDP may help bring in a billion or two, but because there is a penalty involved, many of the offshore account holders may continue to stash their money overseas. A better way is to follow the example of Indonesia, which ran an ambitious amnesty programme in 2016 that waived all taxes for funds that were repatriated to Indonesia during the period. The amnesty programme raked in US$366 billion (RM1.5 trillion), though not all of it was from funds parked overseas. But a good part of it was, and it came from Indonesians who had stashed their cash in Singapore banks. We should do the same.

But for such repatriation of funds to work well, many hands will make light work. IRB, Bank Negara Malaysia, the Finance Ministry and others need to work together to formulate a guideline to help the offshore account holders to bring the money home. We can learn a few tricks from our neighbour Indonesia on how it did it. There are at least two good reasons to extend an amnesty of such a kind to offshore accounts held by Malaysians. Firstly, an amnesty programme’s zero-tax, zero-penalty feature will certainly woo Malaysians to repatriate their funds home. Because tax evasion may be a reason why they took the funds overseas in the first place, though not all of the 450,000 did it for the reason. A second and more important reason is the billions stashed overseas will go a long way in energising our rather lethargic economy.

One area IRB can zoom in is the offshore accounts maintained overseas by Malaysians.