Will the CIA work for the government?
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.