Need to rebalance towards consumption-based tax
THE government reckons the current high reliance on direct tax will increase the vulnerability of revenue collection as it correlates with economic growth and the business cycle.
Hence, there is a need to rebalance the country’s direct tax towards indirect tax, mainly consumption-based tax. This does not only broaden the tax revenue base, but also enhances tax buoyancy.
It notes there is growing global shift from direct to indirect tax as countries strive to boost sustainable tax revenue collection.
The government acknowledges the current tax revenue base in Malaysia is narrowed due to generous incentives, availability of various reliefs and reduction in tax rates.
Meanwhile, the government also notes despite having significantly reduced its dependency on petroleum-related revenue from 41.3% in 2009 t about 23% in 2018, the share is relatively substantial and could expose a risk, particularly when oil prices decline.
The government notes its revenue growth has exhibited a declining trend, from an annual average of 10.7% for 2000-2009 to 4.5% in 20102018, which lagged nominal gross domestic product (GDP) growth of 8.1% per annum in 2010-2018, compared with 8.1% per annum in 2000-2009. In terms of percentage to GDP, total revenue recorded 20.9% compared with 19% during the same period.
Hence, further improvement in revenue collection will be spearheaded by the Tax Reform Committee, which was established in September 2018.
The government expects this will be done by reviewing existing tax system and exploring new sustainable sources. Tax policy enhancement will continue to uphold the principles of neutrality, equity and simplicity towards improving the country’s competitiveness.
To continue to collect more tax revenue, the need for effective enforcement by the tax authorities is an important component. It is timely that tax authorities are transformed into truly service-oriented entities which leverage information technology as well as redesign and streamline existing systems and procedures.