The IRB under the leadership of CEO Mohd Nizom has made discernible progress to improve tax compliance through an emphasis of its Awareness, Education and Services Concept.
GOVERNMENTS around the world are forging ahead to implement recovery and forward-looking policies to tackle rising costs, curb inflation, address the climate crisis, geopolitical tensions and to prepare for a predicted recession.
A key weapon in the arsenals of collective governments is the introduction of tax reforms.
To maintain competitiveness and relevance in the world stage, Malaysia too will need to undergo a holistic and robust transformation by implementing tax reforms that focuses on measures to broaden the tax base and reduce tax leakages.
Perhaps it is providential that reformation has been the mantra of Malaysia’s 10th Prime Minister, Datuk Seri Anwar Ibrahim.
He recently put words into action with the launch of Membangun Negara Madani (Developing a Madani Nation), his reformation plan to foster a new way of thinking among Malaysians guided by principles of good ethics, good governance, honesty and integrity.
On numerous occasions, the prime minister had also emphasised the need to restructure the nation’s subsidy mechanism.
If this becomes reality, blanket subsidies that are currently enjoyed across all income groups, ie, B40, M40 and T20 may be a thing of the past.
With Malaysia’s consumption subsidy expenditure for 2023 projected to hit RM77.3bil, the implementation of a targeted subsidy programme (if devised properly) by way of cash transfers directly to the B40 and M40 group will surely alleviate the government’s financial burden.
This then can be reallocated to other development and recovery initiatives.
Carbon tax
In addition, if the Budget 2023 announced on Oct 7, 2022 (Budget 1.0) is of any indication, then our government seems to be on the right track in terms of “being ready” for the inevitable trickling of emerging tax reforms into our borders.
One such emerging tax is the carbon tax.
To achieve net zero by 2050, carbon reduction measures such as carbon pricing and carbon tax were first mentioned during the tabling of the 12th Malaysia Plan in 2021 and further emphasised in Budget 1.0.
As it stands, carbon tax is no longer a question of “if” but of “when”.
The eventual introduction of a carbon tax in Malaysia will serve as a new revenue source, which will help drive the country’s environmental, social and governance (ESG) agenda.
Pillar 2
The global minimum corporate tax (“Pillar 2”) is another emerging tax development that has created a lot of buzz in the international community.
It was developed to curtail tax competition, shifting of profits and to combat deleterious tax practices by multinational corporations and global governments in the race to the bottom.
In line with the impending international adoption of Pillar 2, it was announced in Budget 1.0 that a qualified domestic minimum top-up tax (QDMTT) will be introduced with a targeted implementation date of 2024.
Once QDMTT is in effect, Malaysia is set to benefit as we will not be forgoing taxing rights on the profits generated from Pillar 2 to other countries.
Wealth tax
There is also a growing global movement favouring a wealth tax to be imposed on the top 1%.
The pandemic has exacerbated wealth inequalities, which has resulted in the introduction of Cukai Makmur, a one-off windfall tax aimed at companies that enjoyed super profits from the Covid-19 pandemic.
Similarly, the government could consider revising the income tax rate for high-net-worth individuals (currently at 30%).
Then, there’s the goods and services tax (GST) as a possible avenue to broaden our tax base. It is undeniable that an average of RM40bil in GST was collected each year when the GST was still in effect.
A gradual shift towards reintroducing the GST can be achieved by expanding and introducing some GST mechanisms into our current sales and service tax or SST system, which will allow businesses time to implement the changes and for the rakyat to be ready for the inevitable need for the GST to be reintroduced.
Keeping up with the times
On this matter of tax reforms, credit must be given to the Inland Revenue Board (IRB) for keeping up with current and emerging tax reform initiatives.
The IRB under the leadership of its chief executive officer, Datuk Dr Mohd Nizom Sairi, has made discernible progress to improve tax compliance through an emphasis of its Awareness, Education and Services Concept (AES).
While the AES initiative is meant to complement the IRB’s enforcement activities to increase voluntary tax compliance rates, tax audit and tax investigation activities will still be integral in ensuring taxpayers carry out their civic duties to pay tax.
The IRB’s tax audits have come a long way with the tax audit framework being updated seven times since Malaysia embarked on the self-assessment tax regime in 2001.
There is no doubt that the IRB’s tax audit regime has reached a level of maturity on par with that of neighbouring countries.
As we move towards a near-borderless digital economy and with relentless technology evolutions, tax evaders are getting bolder and more innovative in tax evasion shenanigans.
The timely update of the IRB’s tax investigation framework (which took effect from Jan 1, 2023) to move towards criminal prosecution and indictment for tax investigation cases via the courts system would, hopefully, act as a deterrent and wake-up call to non-compliant taxpayers.
Tax investigation
It would surely be interesting to observe how the IRB intends to carry out future tax investigations based on the updated framework.
Reforms are rarely easy and largely unpopular. It takes vision and a strong will to push through the challenges to secure progress.
Hence, all eyes will be on our prime minister when he unveils the revised national 2023 budget.
Will his government choose the safe path, or take the unpopular but bold steps to introduce reforms for progress?
As Malaysia’s national debt has breached the RM1 trillion mark, one fact is obvious: we need immediate and robust tax reforms that will build our nation up, otherwise Malaysia risks being left behind.
Soh Lian Seng is head of tax, KPMG in Malaysia. The views expressed here are the writer’s own.
