AS salaried employees prepare to meet their deadline this month-end to file their returns and then pay their outstanding taxes, it becomes obvious that the Government needs to widen its revenue base.
Here are 10 ways for the Government to increase their revenue and save money. If they follow just half of these suggestions, they may not have to squeeze poor salaried workers by requiring them to pay an unreasonable 20% to 30% extra in taxes for merely not filing their returns on time, even if they were already paying taxes under the pay-as-you-earn scheme.
1. Introduce a value-added tax. We badly need a broad-based tax whereby the Government gets income from consumption, especially by those who can afford it. Very few people (perhaps a million) pay income tax at the moment and a tax on goods and services used will help. Essential items can be exempted. Such a tax also provides documentation which may help cut tax evasion.
2. Introduce capital gains tax. This will be a hugely unpopular move among those who make quick bucks from investments in the stock market and those who aid them. But the most capitalist of countries in the world, the United States, has just such a tax at 15% and there are those, like the world's richest investor Warren Buffet, who think that it is still too low. We can be more progressive and impose a flat capital gains tax of say 30% which goes down to 15% after five years on all asset sales, including property and the like.
3. Get the wealthy who don't pay tax. Ah, yes, this is a long-standing complaint. How come those who drive big cars and even those driven in one of them and who have huge houses don't get taxed? Why is it so difficult for the Inland Revenue Board to track down these people and bring them to book? They can do so by simply looking at car and house ownership and checking against their tax files. There surely seem to be lot of people living way beyond their means and I suppose a lot of them will claim they made money from the market but if there is capital gains tax, they can't claim that because the records should show they have paid the tax. Talk about killing two birds with one stone.
4. Remove tax incentives. Yes, you heard right. Foreign firms and domestic companies that set up operations do so because we must have some competitive advantage. What's the point of giving them capital allowances and tax holidays for long periods of time when they milk us for low labour and other low costs and don't even pay taxes? In some cases there is a double blow the same tax they don't pay here is paid in their home countries instead because of tax laws. How unfair is that. I reckon we lose tens of billions of ringgit yearly through these measures.
5. Auction land. Why must state and federal governments constantly be allocating land to others and then allowing their conversion for use from say agricultural to residential or commercial, letting developers take tonnes of profit even before they have turned a bucketful of soil to develop their properties. The best way to do this is simply to have a master plan for all land the governments possess, have the state/federal government convert the land for appropriate use and then auction it in manageable parcels to those who will use the land intelligently, sustainably and will pay a good price for it based on the plot ratio they suggest. The governments can collectively make billions from such moves yearly.
6. Auction licences. We must be one of the few countries in the world who give away licences free for telephony, TV networks, etc. These companies can eventually make billions. Why give away valuable licences free? The best thing will be to auction these to the highest bidders and the money will go into government coffers.
7. Sell concessions. Again, we must be one of the few countries in the world to give away concessions we give a valuable right but we don't charge for it at all. In this way toll operators and electricity generators have carved out billion-ringgit assets without having to pay a sen to the government for the rights. To make matters worse, they get massive tax concessions on top of their concession because of the capital expenditure they undertake. When these concessions expire, the government should take them back, run them efficiently and put the recurrent income into government funds or re-tender and sell them for market value.
8. Curb smuggling. The amount of smuggling of all manner of products and especially cigarettes and beer results in a great loss of revenue to the country. Manufacturers don't care too much because so long as they get the selling price for the product, it matters little or nothing to do them whether they pay tax on the products. We need to up our enforcement and quickly.
9. Cut procurement costs. We have some big ticket contracts coming up, all of which will run into more than RM100bil in the next few years. If we can cut our procurement costs by 10% we can save more than RM10bil. As successive Auditor-General reports have shown, our procurement standards are rather low and need to be tightened up quite considerably. If we do that, we may even save RM20bil-RM30bil a year if we consider how much the Government spends.
10. Stop subsidising big business. At the margin I pay more than 40 sen per kilowatt-hour (kwh) for electricity. I am amazed that aluminium smelters in Sarawak will pay less than 10 sen per kwh. To add insult to injury, it is a terribly polluting industry and has limited impact on the rest of the economy.
These are just some little moves that can have a very big impact on our overall revenue and cost position. A lot here and a lot there will result in lots more revenue and lots less cost and improve the lot of the Government's finance, obviating the need for them to squeeze the small guy to get more revenues.
I am sure the bright sparks in the Inland Revenue Board and other parts of Government can think of ten times more ways or a 100 more to improve revenue and cut costs. If that happens, we are well on the way to becoming a developed country by 2020.
Independent consultant and writer P Gunasegaram likes this quote from Mr Micawber in David Copperfield by Charles Dickens, which applies just as well to nations as individuals: “Annual income twenty pounds, annual expenditure nineteen (pounds) six (pence), result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.”