Malaysia To Prioritise Higher Wages Before Broadening Tax Base, Says Economy Minister
PUTRAJAYA, July 28 (Bernama) -- Malaysia’s immediate priority right now is to raise people’s incomes and address the country’s structural wage issue before broadening the tax base, Economy Minister Akmal Nasrullah Mohd Nasir said.
He said this in response to the Organisation for Economic Co-operation and Development’s (OECD) recommendations that the country reform its tax system, including by re-introducing a broad-based consumption tax and broadening the personal income tax base to mobilise additional revenues.
Akmal Nasrullah said, as highlighted in the OECD Economic Survey of Malaysia, that only about 15 per cent of the country’s workforce currently falls within the personal income tax net.
“The issue is how Malaysia continues to focus on its ability to increase incomes first. There may be views on introducing a more efficient taxation system, but we also need to consider the space to raise people’s incomes first.
“At the moment, while we respect the OECD’s view, what is more important is how to broaden our tax income because without higher pay or better wages, whatever tax that we introduce may have some repercussions in terms of what people consume or what people earn.
“So, for Malaysia at this point, the focus is on addressing the wage issue more comprehensively,” he told reporters after the launch of the OECD Economic Survey of Malaysia here Tuesday.
Commenting on whether the expansion of the sales and services tax (SST) is sufficient to increase government revenue and achieve fiscal consolidation targets, Akmal Nasrullah said the salary issue is still a structural problem that needs to be given priority.
“We need to be more courageous in facing the salary issue which is indeed still a structural problem that occurs because the issue in terms of taxation is how to expand it because the salary is not enough to pay income tax.
"The priority at this time is to continue to address structural issues regarding the salary or income position of the people.
"At the same time, the tax rules introduced also need to cover how the tax can be further expanded, but not to the point of hindering existing economic growth," he said.
Meanwhile, OECD Director of Country Studies Dr Luiz de Mello said the survey identified a range of options on both the spending and revenue sides that could help Malaysia achieve its fiscal consolidation targets.
He said Malaysia aims to reduce its fiscal deficit to three per cent by 2028 and stabilise debt below 60 per cent of gross domestic product (GDP) over the longer term.
“Perhaps the key point that we can make in this respect is that, regardless of the measures that are taken on the revenue side, Malaysia has a target for the consolidation of its public finances to reach a three per cent deficit by 2028, and then to stabilise debt at below 60 per cent of GDP over the longer term.
“What we tried to do in the survey is to identify some options, both on the spending side and on the revenue side, that could be consistent with achieving those targets.
“One point we make in the survey regarding the spending side is on fossil fuel subsidies, and the space that we consider there is for reducing gradually that type of spending in a way that both safeguards the public finances and at the same time protects vulnerable households from pressures associated with rapid increases in energy shocks.
“But on the revenue side, we respect Malaysia’s decision not to focus on the value-added tax at the moment. We point out that this is a measure that many countries have considered in that space, and this is part of our policy dialogue: we exchange views on options, and countries consider what they find most appropriate for their specific objectives,” he said.
-- BERNAMA