Tax Revenue of Malaysia

Tax is the main revenue for the government of Malaysia. It is vital for economic growth.

According to Bloomberg, taxes contribute to around 70% to the total government revenue.

Direct tax is constituted by petroleum income, companies and individual taxes; meanwhile indirect tax consists of sales tax and excise duty.

How to Increase Tax Revenue of Malaysia?

Currently, the Malaysian government is trying to implement Goods and Service tax (GST) to replace the existing Sales and Service Tax (SST).

What is GST?

GST is charged and collected on all taxable goods and services produced in the country including imports. The difference between GST and the present consumption tax is in terms of its scope of charge. GST is a more comprehensive tax charge which includes the manufacturing and distribution stages as well as providing a tax credit claim for GST paid on business inputs.

Should GST be implemented?

The GST is a more transparent, effective and business-friendly tax system. GST is able to overcome cascading tax, double tax and pyramiding tax and tax erosion. This eases the government to monitor and collect tax from tax payers.

Besides, the government can benefit from GST in terms of higher tax collection. This is an effective strategy in offsetting its budget deficit.

According to Datuk Seri Idris Jala, Minister in the Prime Minister's Department, this system will increase tax revenue by RM20 billion to RM27 billion.

"At maturity, is when, every Malaysians starts to contribute towards the GST. It must be implemented as soon as Malaysians are ready to accept the mechanism," he added.

Therefore, from the government point of view, GST is beneficial and should be implemented.

How will it affect the people?

GST will widen the wealth gap. 

This is because the government is shifting this tax burden from the wealthy to the people of all income levels due to the flat tax rate of 4% imposed.

For example, SST is only chargeable in luxury goods and services such as imported cars, hotels, restaurants and fast food restaurants and alcohol. These are usually demanded by the upper social.

However the extent of GST has a wider coverage. 

It now causes the low income people who once enjoyed the privilege of not paying tax to pay tax. This will be a burden to this group of people.

Though necessities such as rice is not GST taxable, however, the materials (fertilisers, pesticides, transportation fuels) used to produce rice is taxable. 

So, will price of rice actually increase?

According to Lim Guan Eng, Chief Minister of Penang, the implementation of GST will lead to inflation.

This is because this tax is imposed on every transaction, which means no matter who you are, young or old, rich or poor, this tax must be paid in consuming goods and services.

So, do you think GST should be implemented? 

Any Alternatives?

Besides implementing GST, one of the ways is to combat the black market. Black market will cause massive tax revenue losses to the government.

A good way to diminish the black market is by legalising sports betting and prostitution.

Sports betting

According to industry officials, illegal sports betting in the nation total up to RM20 billion. If government approve licensing in this field, they could increase collect tax collection by RM4 billion annually, according to the former Deputy Finance Minister of Malaysia, Chor Chee Heung.

Prostitution

According to Havoscope, the prostitution market in Malaysia is valued at RM3 billion.

In our very own opinion, not to be offensive to anyone against our point, the government can consider legalising this industry since many developed nations has already implemented it. This could also increase tax revenue for our country. For example, the United States government is receiving US$ 6 billion from the US$ 18 billion market. In addition, they collected US$ 2 billion in licensing rights.

Another major source that reduces the possible tax collection in Malaysia is the growing extent of money laundering and dirty money.

According to Global Financial Integrity, Malaysia lost RM200 billion in 2010 and from 2001 to 2010, we lost roughly RM915 billion to money laundering and dirty money. This is even higher than the total revenue of the Malaysian government of RM159 billion in 2010.
If money laundering can be wiped out, it increases the taxable money the country can collect, since the money will be in circulation in our country.

The government should reduce the occurrence of tax evasion.

All these reasons can be related to one word – corruption.
Therefore, the government, through Malaysian Anti-Corruption Commission (MACC), needs to be more efficient in tackling this issue.

As a conclusion, there are alternatives for the government to increase the tax revenue for the government.

Written by:

Michael Yeo (0314238)
Lim Foong Kien (0315622)