PETALING JAYA: A clear-cut framework must be established first before any supertax is imposed on sectors that have benefited from the Covid-19 pandemic, experts say, amid calls for the government to implement a windfall tax levy on them.
“Imposition of a supertax or any new tax should be within an established, transparently published framework. Policy considerations regarding market access are also essential,” TraTax tax adviser Thenesh Kannaa (pix) told SunBiz.
In broad terms, he said, export-oriented businesses that do not benefit directly from access to the domestic market may react negatively to a windfall tax as it disincentivises value-adding activities in Malaysia.
“Also, imposition of windfall tax should be coherent with import policy in relation to businesses that benefit from Malaysian market access without contributing to Malaysian corporate tax or employment opportunities.”
Speaking on the subject, Sunway University Business School professor of economics Dr Yeah Kim Leng regarded the matter as “more or less settled” last year as the Malaysian government accepted a sizeable contribution from glove companies towards defraying the costs of containing the Covid-19 pandemic.
The renewed calls, he opined, are likely drawn from the justification that there is an existing tax being imposed on the petroleum and oil palm sector. Thus, the need for such a tax to be applied equally across all sectors. Doing so will require the mechanics and trigger price or profit levels to be worked out, according to Yeah.
“Nevertheless, with the pandemic likely to ease as vaccination picks up pace, the glove industry will likely experience downward trends in average selling prices amidst rising capacity,” he said.
Yeah said these super profits are expected to disappear once demand tapers off and excess supply kicks in.
Although a major shakeout is unlikely, given the cyclicality of the industry, the economist said, the glove companies will have to brace for a downcycle and industry overcapacity.
“Extracting windfall profits from these firms which are already paying the maximum tax rate on the bumper earnings may affect their capital investment and adjustment plans.”
The supertax issue was raised last week by former CIMB Group chairman and Bank Pembangunan Malaysia chairman Datuk Seri Nazir Razak as well as Khazanah Research Institute senior adviser Professor Dr Jomo Kwame Sundaram.
Nazir pointed out that glove companies made billions in super profits from the pandemic, yet were not subject to supertaxes to help pay for the cost of fighting the pandemic. He put forth the view that taxation systems have to be more progressive so as to afford more effective safety nets and redistribution policies.
Jomo opined that the government should consider implementing a windfall tax on industries that benefit greatly from pandemic. He stated that this is the right time to reform tax to include windfall tax, as it occurs all the time amid extraordinarily high petroleum prices or palm oil prices and asked why not include other types of industries in the mix.
