Centre proposes reforms in Malaysia’s tax framework

KUALA LUMPUR: There is a need to reform or modernise Malaysia’s tax framework to fit the nation’s requirements, according to a prominent tax advocate Dr Veerinderjeet Singh.

He said the increasingly complex business transactions, rising cross-border transactions, new ways of doing business, current speed of change and technological developments are factors that contribute to the demand for a new tax framework.

“It is timely that Malaysia announces a comprehensive fiscal reform which is widespread and wide-ranging, put in place a long-term plan to mould a world-class tax system that will be comparable to systems used in the leading developed nations in the world.

“It is time to let go of the ‘ad-hoc’ approach of tinkering with the tax system,” he said in a new policy brief, titled Developing a Modern Tax Framework from Malaysia, released by the Centre for Market Education (CME).

Veerinderjeet said the proposed framework should be simple and easily understood, transparent and fair, robust and flexible, as well as communicative and engaging.

The proposed central priorities in the tax reform framework are not only on the efficiency and effectiveness of the tax system to counter tax avoidance and evasion, but to also take into consideration the aspects of equity and fairness, he pointed out.

The tax reform must be built with features of fairness, international competitiveness for businesses, less complex tax administration, as well as revenue adequacy and sustainability.

He also highlighted the issue of Malaysia’s extremely narrow tax revenue base, whereby 21 per cent out of 508,150 companies registered with the Inland Revenue Board, and 15 per cent of employees are subjected to income tax.

With around 2.2 million individuals paying income tax compared to a workforce of 14 million, has put into focus the extremely narrow base from which the government tries to extract its tax revenue, he said.

Veerinderjeet said the personal income tax base is affected by the granting of too many personal reliefs, while for the corporate tax rate, it would be a challenge to lower it under current economic circumstances if there is no additional tax revenue generator.

He cited that several countries are cutting their corporate tax rates to woo foreign direct investment (FDI) and Malaysia too needs to make a similar move with probably a 1.0 per cent annual cut and widening the scope of its consumption taxes.

“The government does face some serious constraints and the issue of tax evasion and the under-reporting of income is also an area that needs substantial research, as the hidden and informal sectors can generate substantial tax revenue.

“A robust fiscal framework (over say a five to 10 years’ time frame) to outline the way forward is what we need,” he suggested. – Bernama