Fiscal Outlook 2020: Tax reforms crucial to nab evaders

“In addition, the incidence of hidden, informal and hard-to-tax sectors creates an unfair advantage to those compliant taxpayers. Here, it is crucial to include the tax evaders strategically into the tax relief,” the Tax Reform Committee said.

KUALA LUMPUR: The Tax Reform Committee believes the government should enhance its efforts to strengthen further the revenue stream, cast the net wider to nab tax evaders.

“Measures to improve the existing tax system, including reviewing tax incentives, streamlining tax administration and exploring sustainable revenue sources are some of the possible options for the government, ” it said in the Fiscal Outlook 2020.

It said the current tax revenue was narrow due to generous incentives, availability of various reliefs and reduction in tax rates.

It pointed out revenue growth fell from an average of 10.7% for 2000 to 2009 to 4.5% in 2010 to 2018, lagging nominal GDP growth of 8.1% per annum in 2010 to 2018 (nominal GDP growth 2000 to 2009 was 8.4%).

As at end-2017,62.4% out of the 1,251,190 companies were registered with the Inland Revenue Board of which 7.8% are subjected to tax.

Only 16.5% of 15 million workforces pay individual income tax.

“Despite the government significantly reducing its dependency on petroleum-related revenue from 41.3% in 2009 to about 23% in 2018, the share is relatively substantial and could expose a risk, particularly when crude oil prices decline, ” it said.

“Tax incentive granted to companies is a cost to the government due to tax revenue foregone.

“Instead the government could use the revenue foregone for other development projects or lowering the fiscal deficit, ” it said.

The Tax Reform Committee said it was timely to review the relevance, effectiveness and efficiency of the whole tax incentive structure both in the Promotion of Investments Act 1986 and Income Tax 1967.

“Furthermore there is a serious need to address the issue of tax evasion and under reporting of income which undermines the self-assessment system as well as public trust and confidence in the whole taxation system.

“In addition, the incidence of hidden, informal and hard-to-tax sectors creates an unfair advantage to those compliant taxpayers. Here, it is crucial to include the tax evaders strategically into the tax relief, ” it said.

Meanwhile, the Federal Government remains committed to its debt consolidation with a targeted debt-to-GDP ratio below 50% in the medium-term.

“As an emerging economy, Malaysia has a relatively manageable level of debt and financing needs, below its stipulated limits, ” it said, adding proceeds from the debt are for building schools, roads, hospitals and clinics and providing access to utilities.