Ideas proposes new living wage tax credit for companies

  • Nation
  • Friday, 20 Sep 2019

PETALING JAYA: Corporate tax incentives to encourage companies to pay above minimum wage are among the budget proposals by the Institute for Democracy and Economic Affairs (Ideas).

Ideas director of research Laurence Todd said the proposed Living Wage Tax Credit (LWTC) would give tax deductions to companies which pay employees up to RM2,500 instead of the current minimum wage of RM1,100.

Under the proposal, there would be tiered corporate tax incentives to encourage above minimum wage pay rises, he said.

“The idea, we hope, is to nudge companies into paying higher wages but still give them that choice to respond to market conditions.

“We believe this is a sustainable way to increase wages beyond the minimum wage, ” he told an Ideas forum titled Making Shared Prosperity A Reality in Budget 2020.

While the minimum wage was insufficient to address cost of living concerns, he said it could not be raised too quickly as it could dampen the environment for businesses to create jobs and prosperity.

Todd also proposed an Employee Equity Scheme, where employers would be incentivised to allocate shares to employees.

“We think if workers own shares in the businesses they are employed in, they will be more motivated and that will be good for the business.

“They will also have some ownership of the wealth in Malaysia, ” he said, adding that many companies already operated such schemes.

Todd also said the government should introduce a Capital Gains Tax during the upcoming budget.

This would entail a “modest” rate of 5%, with a tax-free allowance of RM50,000 to insulate individuals, small-scale stakeholders, and small businesses, he said.

He said doing away with the Goods and Services Tax had narrowed the tax base, and that the Sales and Services Tax was insufficient to replace the lost revenue.

Todd also urged the government to come up with a comprehensive divestment strategy, saying that its huge presence in the market had created concerns over competition and lack of liquidity in the market.

He said the government currently held over 40% of total market capitalisation in public-listed companies, with majority stakes in more than 70 companies.

“What the government should signal now is that there will be a gradual divestment process, where the government moves from 40% ownership of the stock market to 10% over the next 10 years, from 70 majority shareholdings to zero or only in places of clear demonstrated public interest, ” he said.

He, however, said they were not advocating for the money to be frittered away or spent on paying debts, but that it should be invested outside the Malaysian economy.

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