The government has to widen its tax base to strengthen the country’s fiscal position because the current system based on the Sales and Services Tax (SST) is only predicted to collect RM22bil this year, says the Malaysian Institute of Certified Public Accountants (MICPA) president Dr Veerinderjeet Singh (pic).
This is a huge shortfall as the previous tax system – the Goods and Services Tax (GST) – had managed to collect RM44bil.
In a recent announcement, Finance Minister Lim Guan Eng said there will be no new tax measures in the upcoming Budget 2020.
Tax experts said with current oil prices hovering around US$55 (RM220) to US$65 (RM260) per barrel, the 2020 budget should be drafted in that range to avoid over dependency on Petronas’ reserves.
Since last year, the benchmark Brent Crude had peaked at US$84 per barrel before sliding to US$53 per barrel in January.
Veerinderjeet said that in the current economic situation, the government should consider widening the tax base.
“Currently, only two million of the workforce are contributing to income tax. Besides the workforce, there are also people with high levels of income who do not pay income taxes. This is because our current low salary level, coupled with various tax incentives, have caused many to be excluded from paying taxes, ” he told Bernama.
He added that SST only covers 38% of the basket of goods, compared with 60% under GST.
He said with technological advancements, the Inland Revenue Board, commercial banks and Bank Negara Malaysia should have an interlinked system to identify tax evasion.
“With technology, it would be difficult for tax evaders to run away, hence bringing those people under the tax net, ” said Veerinderjeet, who added that the government should also look into the shadow economy as some studies show this sector accounts for approximately 30% of the nation’s gross domestic product.
From an economic and tax policy perspective, there has also been support for reverting to the GST due to its transparency and ability to collect higher revenue.
Veerinderjeet said what makes GST clearer is the input and output tax, which is difficult to manipulate.
Meanwhile, Deloitte Global Indirect Tax Clients & Industries Leader, Senthuran Elalingam, said the reintroduction of GST will provide a wider tax base and a more efficient collection.
“The government has acknowledged that GST is a more efficient system than the current SST regime. However, the question remains on the timing, ” he said, adding that there needs to be a study how it can be effectively implemented, including solving issues such as late payments of GST refunds.
“If Malaysia is to reintroduce the GST at some point, we would need to learn from what didn’t work so well the first time and have measures in place to ensure GST 2.0 succeeds, ” he said.
While the government has announced that it would implement a service tax of 6% on digital services on Jan 1,2020, the Customs Department has yet to announce the guidelines. — Bernama