Tax reform: Chance to get it right

A TAX reform committee has recently been formed by the government to review the tax system introduced in the late 1960s, when the Malaysian economy was substantially a commodity-based economy. Today our economy is dominated by multinationals and large conglomerates, and digital means of doing businesses, has become the norm.

The government needs a tax system that will provide sustainable tax revenues to narrow the budget deficit; support government expenditure; fund its operations and invest in developments that support future economic growth. The committee is mandated to: i) reduce the tax gap, address tax leakages, explore new sources of revenue, study the taxation of the digital economy, and review the effectiveness of tax incentives;

ii) introduce a more efficient, neutral and progressive tax system;

iii) strengthen enforcement and compliance measures against abuses of transfer pricing, tax planning, fraud, tax evasion and smuggling of controlled items.

What do we want as individual taxpayers?

Disposable income of the individual taxpayers should be increased, particularly the M40 (Median income: RM6,275 – 2016) and T20 (Median income: RM13,148 – 2016) income groups who are liable to taxes, and providing cash subsidies to the B40 (Median income: RM3,000 – 2016) income group.

Additional disposable income in the hands of these groups will spur consumer demand contributing to the economic growth of the country.

There is a possibility of additional taxes such as extending the capital gains tax beyond real property gains, reviewing the stamp duty regime, introducing inheritance taxes, widening the scope of taxation to include worldwide income could be recommended by the tax reform committee. The committee should obtain feedback from the public on their sentiments and how such measures may impact them.

Overall, it is absolutely important that we, as ordinary citizens, benefit from the reform through improved efficiency of the tax administration by reducing our burden in complying with our tax responsibilities. Our rights as taxpayers should be strengthened against the extensive powers accorded to the Inland Revenue Board (IRB) and the Royal Malaysian Customs Department (RMCD), to collect and enforce the tax system.

What do SMEs want?

SMEs are the biggest contributors to employment in the country, providing 66% of the country’s employment in 2017. Being small businesses, their focus is on generating business and surviving in a very competitive business environment.

What they require most, is minimising their burden to comply with the tax system. Both IRB and RMCD should make available resources to resolve any uncertainties SMEs have in understanding or complying with the tax system. Both agencies must become more responsive, approachable, and not merely focus on tax collection.

The tax incentive regime should be reviewed to give greater emphasis to the SMEs.

Currently, the focus of the incentives today is towards large foreign multinationals and larger domestic companies who have the resources to benefit from the current incentive regime.

The overall corporate tax rates should be reduced to compete with our neighbours in Asean, that have generally moved to 20% or less quantum.

Conclusion

The tax reform committee has a golden opportunity to comprehensively review and revamp the tax system to help the future growth trajectory of Malaysia.

The burden on the members of the tax reform committee members is a heavy one which the members of the committee should be extremely mindful as we the taxpayers are expecting the new tax system to benefit all of us as taxpayers and not increase our burden of taxation, or compliance.

is the managing director of Thannees Tax Consulting Sdn Bhd and the chairman of the Board of Trustees of the Malaysia Tax Research Foundation