Government to take soft approach in tackling shadow economy

KUALA LUMPUR: The government will take the soft approach in tackling the shadow economy which is 20% of Gross Domestic Product (GDP), said Finance Minister Lim Guan Eng.

He said the shadow economy in developed countries is 5% of GDP and in developing nations is 12%.

“Ours is very high. When there is lack of trust and no belief in the rule of law, that is why illegal and illicit activities happen. We must restore trust in our institutions,” Lim told reporters after visiting the Inland Revenue Board customer open day.

“We need to rebuild faith and trust in the rule of law, government and economy,” he added.

More than 1,000 people attended the event, which will be held every

Wednesday. Lim said by taking the soft approach, the government hopes that those running illegal economic activities will legitimise their businesses.

“We are not going to see results overnight, it will take some time but we have to do it,” Lim added.

He said corruption, smuggling and unreported income form part of the shadow economy.

On tax collection, Lim said the government intends to collect RM155 billion this year, a 5% increase from last year’s RM145 billion.

He said the government always set a higher target, which was RM147 billion last year but only collected RM145 billion, 8% higher than 2018, which stood at RM137 billion. Lim said the increase in last year’s collection shows that the economy is growing strong.