THERE has been much discussion on the introduction of new taxes or raising tax revenues by tightening the tax administration. The new taxes that have been bandied about has been capital gains tax, transaction taxes, reintroduction of Goods and Services Tax, wealth tax, inheritance tax, windfall tax etc.
Although the intention is noble with trying to increase the government revenue to fund the unexpected expenditure incurred in supporting the economy during the Covid pandemic in 2020, 2021 and possibly 2022; is this the right approach?
Now that the overall vaccination has reached close to 90% of the adult population, the economy is beginning to open up and businesses are in the early stages of getting their act together. Many businesses have burnt their cash resources in attempting to stay afloat.
Don’t kill the golden goose that lays the eggs
Businesses are in a nascent state of recovery and have to dig deep into their resources or resort to financing from external sources to restart their businesses.
Imposing new taxes on businesses or intensifying scrutiny or increasing compliance burdens on existing taxpayers would be counterproductive and structurally detrimental to the economy.
At this juncture, businesses should be allowed to generate profits and use it to reinvest in working capital or new investments to provide them an opportunity to grow and subsequently pay the taxes.
Allow taxpayers room to pay past taxes
Businesses may have made profits in the past and it is also possible that taxes may have been underreported due to technical reasons or pure ignorance.
Tax audits and investigations are being carried out by both tax authorities (Inland Revenue Board and Royal Malaysian Customs Department) for the past years and large bills are raised. Both agencies may be correct in raising the tax bills, however, businesses may have used up the funds and therefore may not be in a position to pay the past taxes. In such situations, both agencies should seriously consider deferring the collection for perhaps another 18 months to two years until we get over this Covid pandemic or endemic.
Not the right time to reintroduce GST
Businesses would prefer GST as it is tax neutral to most of them as opposed to the current SST where they could end up bearing some of the tax burden. However, the reintroduction of GST will leave the consumer worse off. With the elections due in 2023, it may be suicidal for any government to reintroduce GST now. Sadly, history has proven that governments that introduced GST have fallen.
What choice does the government have?
Raising taxes, whether new taxes or intensifying audit activities to increase taxes is not the answer as it will affect the cash flow of businesses. Instead of raising tax revenues, the government should be looking at other sources such as meeting the deficit through external financing which the government is already considering by increasing the debt ceiling from 60% to 65%, reducing government expenditure, or selling government assets.
The other choice is to create new revenue through a “focused attack” on unearthing the shadow economy (RM250 billion) into the formal economy. The past records of the revenue agencies to bring them into the open have not been exemplary. An entire rethink is needed with inputs from external sources rather than digging for ideas within the government agencies.
Exceptions
If the government is set on intensifying the collection of taxes or introducing any new taxes, then it should be confined to the businesses who have made superprofits during this pandemic period, or the super wealthy who can afford to pay the tax since their wealth is growing “come rain or shine”. An introduction of a windfall tax on the superprofits or wealth tax on the super wealthy will not be negatively perceived by the rakyat.
This article was contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai.
