Call for bolder tax reforms

Measures to ease burden on Malaysians needed

AMIDST the increasing cost of living, we need an optimum tax structure that eases the tax burden on Malaysians. The Government has, admittedly, introduced measures to simplify the tax system through efiling, online payments and accessibility of tax guidelines.

To help Malaysians cope with the impending Goods and Services Tax (GST), the Government has also introduced a gradual decrease of 1% in the personal income tax rate effective 2015.

However, if we analyse the impact of this 1% decrease in relation to corresponding increases in the cost of living ( see table 1), the net effect puts tax payers in a worse position.

Without a corresponding increase in disposable income after tax, the repercussions could be alarming, especially for pensioners with a fixed income and retirees who rarely have a safety net.

The table clearly shows how the effect of the increase in disposable income resulting from the reduction of tax rates in 2015 is wiped-off by the corresponding increases in the Housing Index and the Consumer Price Index or CPI, which are estimated at 8% and 3.3% respectively for 2014.

A more effective long-term strategy would be for the Government to commit itself to the reduction of tax rates over a five to 10-year period so that tax payers will know in advance what to expect.

Middle-income trap

There has been so much focus on this “sandwiched group”, where a large pool of Malaysia’s talent is contained.

Despite the Government’s efforts to reduce personal tax rates, it is clear that Malaysian tax payers are not enjoying competitive tax rates for the value per ringgit that they earn as compared with their peers in neighbouring countries.

While we have been trying to attract local talent back through the “Returning Experts Programme” and provide special incentives for “Knowledge Workers” at a flat tax rate of 15%, we need to have an equitable and fair tax system for every taxpaying Malaysian.

Even though the “different strokes for different folks” approach has made some positive impact, lowering the tax rate for the wider population would make Malaysia much more competitive in attracting and retaining talent.

To cushion the impact of the increasing cost of living potentially brought on by the GST, the Government should convert the tax relief of RM2,000 currently offered to resident individuals earning up to RM8,000 a month, to a rebate.

A relief merely reduces one’s taxable income, while a rebate reduces one’s tax liability. This rebate should be extended to a larger income group, for example, those earning below RM150,000.

They could also look into extending it to the years beyond the implementation of the GST and increased or indexed accordingly each year in line with the CPI movements as a measure to sustain purchasing power and disposable income.

If we are aspiring to build a highincome nation, then we need longerterm optimisation and “no more petite steps please”. This would require shifting our focus from quantum to quality relief – let us stop petty relief like RM300 for sports equipment.

Instead, we should consider increasing the current Employees Provident Fund (EPF) contribution by employees (currently capped at RM6,000) and instead cap the relief to the actual employee’s annual EPF contribution based on an annual salary ceiling of, say, RM150,000.

At the end of the day, we need bolder reforms that are forwardlooking and long-lasting in impact to effect positive change for the

rakyat.