Tax reform ideas on the table


Proposals include GST and corporate tax changes

KUALA LUMPUR: The government is mulling over various tax reform ideas, including the re-introduction of the goods and services tax (GST) and adjusting the corporate tax at an appropriate time, according to Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed.

“The timing is not appropriate now, under the present (Covid-19 pandemic) crisis situation. The government has started work at looking at some reforms in the tax system,” he said.

Mustapa was speaking at an online media session after the presentation of the OECD (Organisation for Economic Co-operation and Development) Economic Survey of Malaysia 2021.

He noted that there was some pressure from the business community in recent years “as our neighbours gradually reduce their corporate tax rate.”

Mustapa also pointed out that the 12th Malaysia Plan (2021-2025) is due to be tabled in Parliament next month and would outline various strategies to build a prosperous, inclusive and sustainable Malaysia.Mustapa also pointed out that the 12th Malaysia Plan (2021-2025) is due to be tabled in Parliament next month and would outline various strategies to build a prosperous, inclusive and sustainable Malaysia.

“The tax-to-GDP (gross domestic product) ratio is quite low in Malaysia compared to other countries. There are some ideas on the table – GST, corporate tax and improving the tax collection machinery to plug leakages.

“Now is not the time. But there will be a time when the country will have to seriously look at the revenue base to finance development, and promote competition and efficiency,” he added.

Mustapa also pointed out that the 12th Malaysia Plan (2021-2025) is due to be tabled in Parliament next month and would outline various strategies to build a prosperous, inclusive and sustainable Malaysia.

“Among them is to prepare a post-Covid-19 medium-term fiscal strategy, to reduce public debt and contingent liabilities.

“Our fiscal situation has been constrained since last year by economic contraction, a steep decline in revenues and increased expenditure for healthcare and income support programmes.

“When things normalise, we must begin to gradually set economy back on a sustainable fiscal footing,” he said.

Also present were OECD secretary-general Mathias Cormann, and director of country studies (economics) Alvaro Pereira.

Cormann said provided that the Covid-19 vaccination campaign advances as planned, the OECD has projected that GDP growth in Malaysia will reach 4.3% in 2021 and 6.1% in 2022.Cormann said provided that the Covid-19 vaccination campaign advances as planned, the OECD has projected that GDP growth in Malaysia will reach 4.3% in 2021 and 6.1% in 2022.

Cormann said provided that the Covid-19 vaccination campaign advances as planned, the OECD has projected that GDP growth in Malaysia will reach 4.3% in 2021 and 6.1% in 2022.

“As well as sound public health policies, this strong rebound is made possible as a result of Malaysia’s decisive economic policy response, which included nine successive fiscal policy support packages, supportive monetary policy and a resilient financial system,” he said.

Among the OECD recommendations for a dynamic business sector was to provide support programmes to promote the uptake of digital tools, including basic ones such as computers and the Internet, targeting particularly the older small and medium enterprises.

The survey report also said there was a need to strengthen basic digital skills training programmes for employers and employees, particularly those in micro and small enterprises with less than 10 workers.

It also recommended implementing the Malaysia Digital Economy Blueprint as planned by reviewing, improving and streamlining all relevant state legislation and regulations related to digital infrastructure development.

Another recommendation was revising the Competition Act and the Competition Commission Act to provide more oversight of mergers and acquisitions.

Cormann explained that the survey advocated three important structural changes for Malaysia, focusing on competition, digital transformation and moving towards carbon neutrality.

“The OECD’s empirical analysis clearly established that competition is a key driver of productivity growth, business dynamism and innovation, all of which will be critically important when it comes to achieving strong sustained growth post-pandemic,” he said.

Cormann pointed out that barriers to competition remained relatively high in industries such as energy, transportation and telecommunications.

“Starting a new business remains comparatively challenging due to the multiple licences and permits required by various levels of government. There is real scope for simplification.

“While enhancing competition can be uncomfortable and can lead to some disruption, which must be well managed, boosting competition is a powerful engine for progress and improvements in living standards,” he added.

Cormann also pointed out that post-pandemic economic activity will be even more driven by the adoption of online platforms, cloud computing, machine learning and remote business relationships.

Regarding moving towards carbon neutrality, Cormann highlighted a mix of reforms including reducing the use of coal in electricity production, increasing renewable energy production, encouraging lower emissions with a price on carbon, improving forest management and supporting biodiversity.

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