Insight - The timing and scope of tax reforms

Lee Heng Guie: Implementing a tax reform, either via a big bang or incremental approach, when the economic and business conditions are unstable and weak could result in economic and financial adjustment costs that are disruptive and may undermine economic growth in the short-and medium-term. The scope and sequencing of tax reforms need proper planning.

FACED with a yearly budget deficit, narrow-tax base and rising expenditure, the government has to undertake a tax reform to broaden its revenue base. The move is to be accompanied by expenditure rationalisation to achieve its medium-term fiscal consolidation and deficit reduction target.

A tax reform is not a straightforward task. The timing and sequencing may involve controversial policy choices and difficult political trade-offs.