Debate continues on new tax measures ahead of Budget 2019

PETALING JAYA: The introduction of new taxes to tackle the country’s huge debt remains a topic of debate as the Pakatan Harapan (PH) government prepares for its first budget to be tabled in Parliament on Friday.

Both Prime Minister Dr Mahathir Mohamad and Finance Minister Lim Guan Eng have spoken of the need to devise new tax measures, with Lim saying the nation’s fiscal health needs three years to be restored.

However, Institute for Democracy and Economic Affairs director Laurence Todd said the budget should focus instead on the consolidation of funds.

Speaking to FMT, he said fiscal consolidation should see a reduction in unnecessary expenditure instead of the introduction of new taxes.

Narrowing in on the digital tax for online businesses, said to be one of the measures under consideration by the government, he warned of the need to strike a balance between growth and revenue.

“If it has to happen, the government should focus on widening the scope of existing taxes to include the digital sector – in this case, the sales and services tax – rather than introduce whole new taxes,” he added.

If Putrajaya commits to the digital tax, Malaysia will be the second country in Southeast Asia after Singapore to introduce a tax scheme for that sector.

Laurence Todd

Todd also advised the government to take a more in-depth look at programmes and areas of spending to see where savings can be made.

He proposed a review of subsidies to ensure that government funds are spent on policies that provide long-term economic benefit, and suggested a cross-government crackdown on illicit trade which he claimed had cost billions in lost revenue.

Ideally, he said, Putrajaya should attempt to reduce its involvement in the economy by disposing its assets and divesting from Bursa Malaysia.

“This will help raise revenue and, more importantly, stimulate private sector-led growth,” he added.

He also recommended that the government focus on positive initiatives for trade and investment such as speeding up ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

Ramon Navaratnam

Economist Ramon Navaratnam meanwhile welcomed any introduction of new taxes but argued that these should only be imposed on the very rich, with the poor and middle-income groups spared.

He suggested the introduction of more sin taxes and tax schemes such as capital gains and estate duties, as done in other countries.

He warned against over-cutting on government expenditure such as for the civil service as well as debts and grants to states, saying these could not be reduced.

“The government should not over-tax or over-cut on expenditure, and it should not stop borrowing.

“Do a little bit of all three and consolidate the budget,” he told FMT.

He also cautioned Putrajaya against causing “unnecessary panic”, adding that the government should refrain from “overreacting” and dampening the budget too much.

“We have to be pragmatic and not have academic ideas,” he said. -FMT