NEW Malaysia is in trouble, according to Prime Minister Tun Dr Mahathir Mohamad. And the trouble comes in the form of RM1 trillion in national debt and RM35 billion in Goods and Services Tax and income tax refunds. Speaking at the “Malaysia: A New Dawn Investors’ Conference” yesterday, Dr Mahathir said the government needs to find new sources of funds to pay its debt. Conventional wisdom tells us not to cry over spilt milk. It is better to milk another cow instead. And that is precisely what the Pakatan Harapan government is intending to do, though people are worried about what the look and feel of the “cow” will be. Finance Minister Lim Guan Eng says the government needs three years to resolve the fiscal issues and get the economy growing again. But how is the government going to find new sources of funds to pay off the debts? Well, new taxes are one revenue source but it comes with a caveat. People in the low- and middle-income brackets must not be burdened too much.
Taxes have always been tough to balance. Taxes must, above all, be fair. They must be fair to the people so that life is liveable; fair to the businesses so that they do not take their operations elsewhere. It is a tough act, but one worth the effort. Perhaps a two-pronged approach is well-advised. While the government is exploring new taxes, it should stop leakages in its procurement process and loopholes elsewhere. Billions that are saved here can fund much needed socio-economic projects. The government has begun looking at it, but what is needed is a deep dive. The Council of Eminent Persons (CEP) that has seasoned accountants and economists as members may already be looking at it. The second prong is taxes. Personal income tax may not be the right place to look for new funds, though. Firstly, any increase will burden the people, especially the low- and middle income groups who are already complaining of the high cost of living. Secondly, the rich will find ways to avoid it. Real Property Gains Tax (RPGT) which is between five and 30 per cent now (depending on the holding period) can perhaps be upped to 50 per cent. Property prices have shot up, especially in the major cities, yielding windfall gains to owners. According to the Malaysian Property Market Report 2017, residential property prices had risen between 4.3 and 8.6 per cent last year alone.
Or, the government may want to expand the RPGT to a full-blown Capital Gains Tax covering all forms of property at the current corporate tax rate of 24 per cent. Australia and the United States are good examples to follow. There is yet another source: inheritance tax. It was last imposed under the Estate Duty Enactment 1941, but repealed in November 1991. Now that we are close to becoming a high-income nation, perhaps it may be timely to reintroduce it. Whatever the look and feel the “cow” takes, it must be milked with the smallest possible mooing.