Ahead of Budget 2018, economists call for fair taxation

By Syed Jaymal Zahiid
Economist Jomo Kwande Sundaram suggested the replacement of the Goods and Services Tax by a higher levy on the rich and corporations during a forum on Budget 2018. — File picture by Choo Choy May

KUALA LUMPUR, Oct 17 — Economists are calling for the government to repeal the Goods and Services Tax and implement broader tax reform that include imposing higher levy on the rich and corporations in the run up to Budget 2018, which will be tabled Friday next week.

Panellists at an iMoney forum discussing Budget 2018 forum earlier this afternoon said Malaysia has a skewed tax system that provides loopholes for the rich and high-earning corporations to pay very low taxes, while lower income earners pay higher levies percentage wise, now made worse by the GST.

“GST like most consumption taxes are indirect taxes and also quite inequitable,” one of the panellists, former assistant secretary-general for economic development at the United Nations, Jomo Kwame Sundaram said.

“Malaysian tax structure is basically inequitable...in other words, after taxation, income distribution is worse than before taxation and this inequity or regression has increased overtime, especially since the mid 80s and more recently, with the introduction of GST,” the economist added.

The Najib administration rolled out the GST two years ago amid huge public protest.

Many economists argued the consumption tax had hit the bottom 40 per cent, or even the lower middle 40 per cent, citing numbers indicating a huge increase in household spending as prices for foods and services increase.

Since the bottom and medium 40 per cent spend about half their income on food and basic services, they pay higher taxes in tax-to-income ratio compared to the top 20 per cent or upper middle class.

Jomo said Malaysia’s elites and corporations still pay relatively low taxes.

On top of that, the Malaysian tax system also gives the rich and companies too much tax breaks: they pay no taxes for income earned overseas, revenues from share sales or inheritance, the economist noted.

“The question of wealth taxation is very fundamental,” Jomo said as he argued for higher tax for the rich.

“In Malaysia right now, it is estimated, according to some surveys done: half of owners of luxury cars don’t pay any income tax. Can you imagine that?”

Economist Muhammed Abdul Khalid, a critic of the GST, echoed Jomo’s views and told the forum that the debate on taxation should not be confined to GST, but must include calls for reform on the whole tax system.

“When we talk about reform of taxation we should not just talk about GST,” the author of Colours of Inequality said.

“The entire tax system must be looked into..as what professor Jomo said, the tax system here in Malaysia is regressive. If you are poor you pay more, if you are rich we love you so you don’t pay tax.

“Over here if you are a wage earner you pay tax. But if you’re a capital earner, you make money from shares, zero. You don’t pay capital gains tax, nothing,” he added.

Despite the backlash, Putrajaya had said it had no plan to scrap the tax. Prime Minister Datuk Seri Najib Razak said GST helped the government offset the losses from a fuel price rout.

GST revenue was RM39 billion in 2016.