Will the CIA work for the gov­ern­ment?

The Star Malaysia - StarBiz - - Viewpoint - The al­ter­na­tive view M. SHAN­MUGAM starbiz@thes­tar.com.my

THE Gov­ern­ment’s eco­nomic pro­jec­tions for 2018 will earn it ac­co­lades from rat­ing agen­cies and in­ter­na­tional fi­nan­cial agen­cies.

How­ever, the tar­gets set are chal­leng­ing as a lot will de­pend on whether the gov­ern­ment is able to col­lect the rev­enue fore­cast.

Ac­cord­ing to Moody’s, the growth of Fed­eral Gov­ern­ment rev­enue pro­jected for 2018 is the fastest in six years.

The Fed­eral Gov­ern­ment bud­get deficit is pro­jected to re­duce fur­ther to 2.8% next year while the ra­tio of the debt lev­els against the amount of good and ser­vices pro­duced by the na­tion is also com­ing down to more ac­cept­able lev­els.

The ra­tio of to­tal debt against the gross do­mes­tic prod­uct (GDP), which mea­sures the to­tal good and ser­vices pro­duced within the coun­try, is pro­jected to be 50.9% for 2018.

This is well within the in­ter­na­tion­ally ac­cept­able thresh­old of 55%.

In the last four years the ra­tio has been com­ing down, some­thing that rat­ing agen­cies have viewed op­ti­misti­cally. It was as high as 54.7% in 2013.

The ra­tio of to­tal Gov­ern­ment debt, which es­sen­tially are debts held by the fed­eral gov­ern­ment, statu­tory bod­ies and the non-fi­nan­cial pub­lic cor­po­ra­tions (NFPCs) such as MRT Corp, against the GDP is also down to 73.3% as at end of 2016.

Rat­ing agen­cies tend to ex­am­ine the debt against the GDP be­cause it in­di­cates the abil­ity to ser­vice the debts.

Hence, if there is a con­trac­tion in eco­nomic growth, it af­fects rev­enues. Con­se­quently it af­fects the fi­nan­cial ra­tios and rat­ing agen­cies tend to put Malaysia un­der watch.

One of the pri­mary sources of in­come for the Gov­ern­ment is col­lec­tion of tax rev­enues, which makes up al­most 80% of Fed­eral Gov­ern­ment rev­enue.

The Fed­eral Gov­ern­ment rev­enue of RM239.9bil fore­cast for 2018 is pow­ered by col­lec­tion of taxes amount­ing to RM191.6bil.

This is an in­crease of 6.3% com­pared to the RM180.2bil col­lected in this year.

When the goods and ser­vices tax (GST) came into ef­fect in April 2015, the gen­eral view was that di­rect tax rev­enues – which es­sen­tially are cor­po­rate and per­sonal in­come taxes – would de­cline.

It did come down in 2015 and 2016 be­cause cor­po­rate tax rate was cut. So was per­sonal in­come tax for some cat­e­gories.

Since then, di­rect tax – which is from com­pa­nies, in­di­vid­u­als and petroleum re­lated ac­tiv­i­ties – has been grow­ing. It is ex­pected to grow by 9.2% this year and pro­jected to grow by another 6.7% next year.

To im­prove tax col­lec­tion, the gov­ern­ment has set up a unit called the CIA. It is not the US based Cen­tral In­tel­li­gence Agency (CIA) but seems to be mod­elled after that.

The Malaysia ver­sion of CIA or Col­lec­tion In­tel­li­gence Ar­range­ment is an in­te­grated in­for­ma­tion-shar­ing plat­form be­tween the In­land Rev­enue Board, Royal Malaysian Cus­toms Depart­ment and the Com­pa­nies Com­mis­sion of Malaysia.

The ob­jec­tive of the CIA is to share in­for­ma­tion and iden­tify tax evaders. It is to ad­dress the shadow econ­omy and en­hance en­force­ment.

The mere shar­ing of in­for­ma­tion of all three en­ti­ties it­self is a pow­er­ful tool that is ef­fec­tive in iden­ti­fy­ing the lit­tle known com­pa­nies and in­di­vid­u­als who are tax evaders.

There is no doubt­ing that there is a huge shadow econ­omy in the coun­try. Most do not pay taxes. This sta­tis­tics say it all.

Of the work­ing pop­u­la­tion of 14 mil­lion peo­ple, only 2.2 mil­lion peo­ple pay taxes. And the taxes from the 2.2 mil­lion peo­ple sup­port the needs of the pop­u­la­tion of 33 mil­lion.

Ac­cord­ing to the Em­ploy­ees Prov­i­dent Fund (EPF), only 50% of the work force is con­tribut­ing to the fund. The rest are work­ing un­der the shadow econ­omy.

But how much more can be squeezed from the com­pa­nies and in­di­vid­u­als in the shadow econ­omy?

In fact, to com­ple­ment the work of the CIA, the gov­ern­ment is re­view­ing tax in­cen­tives to look into tar­geted and crit­i­cal sec­tors of the econ­omy.

How­ever, the CIA, in its over-zeal­ous over­tures to nab tax evaders, should not scare off the small com­pa­nies. The small com­pa­nies

The CIA, in its over-zeal­ous over­tures to nab tax evaders, should not scare off the small com­pa­nies. The small com­pa­nies are the easy preys. How­ever, they are also the ones with weak fi­nances.

are the easy preys. How­ever they are also the ones with weak fi­nances.

The target of the CIA should be the larger pri­vate com­pa­nies and in­di­vid­u­als who amass wealth through il­licit means.

The un­cov­er­ing of mil­lions stashed in the homes and bank ac­counts of in­di­vid­u­als only un­der­scores the fact that there is a huge shadow econ­omy in Malaysia.

The ob­jec­tives of the Gov­ern­ment in set­ting lower deficit num­bers for 2018 is con­sis­tent with its poli­cies of Na­tional Eco­nomic Trans­for­ma­tion in want­ing to see Malaysia achieve a near bal­ance bud­get by 2020, which is less than three years away.

For any Gov­ern­ment, achiev­ing a bal­ance bud­get is an ideal sit­u­a­tion be­cause it shows dis­ci­pline in spend­ing.

It in­di­cates that the Gov­ern­ment spends what it earns. Malaysia has not had that lux­ury in the last 20 years.

How­ever the ef­forts to in­crease rev­enue should be com­ple­mented with con­crete mea­sures to en­hance spend­ing ef­fi­ciency. The leak­age in Gov­ern­ment spend­ing should stop.

Pro­jects that are over-val­ued should be re­viewed im­me­di­ately.

When there is more care in spend­ing pub­lic fi­nances, a large por­tion of the shadow econ­omy will shrink. The CIA will prob­a­bly have less work to do.

Tax re­turns: Tax-pay­ers do­ing their in­come tax E-fil­ing at at Ayer Keruh In­ter­nal Rev­enue Depart­ment in Me­laka. Of the work­ing pop­u­la­tion of 14 mil­lion peo­ple, only 2.2 mil­lion peo­ple pay taxes.

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