Calm the itch to raise taxes, Putrajaya told

KUALA LUMPUR: An economist has urged the government to resist any temptation to raise taxes after the Covid-19 threat is over.

Yeah Kim Leng of Sunway University said raising taxes would be counterproductive in light of the government’s fiscal stimulus initiatives.

He said the government would have to rely on taxes at current rates and dividends from government corporations other than Petronas since oil prices are low and likely to remain so for some time.

“Corporate income tax, which contributed an average of 28% of total government revenue over the last three years, will continue to be the workhorse but is likely to be diminished as profits take a dip in a downturn,” he told FMT.

Yeah also predicted a reduction in the collection of sales and service tax (SST) since the economy is likely to slow down and thereby discourage consumption.

SST accounted for 10.2% of revenue in 2019.

He said contributions from exports to the economy would depend on recovery in global demand, but added that “the earliest recovery is likely to be early next year”.

He said the government could also tap on the reserves in sovereign wealth funds or monetise assets and divest stakes in government-linked companies.

This would help reduce the government’s exposure to the vagaries of the commercial scene and give room to the private sector to spearhead economic growth.

However, Yeah also said asset sales might prove challenging given the expected weakness of global sentiments.

He suggested turning airports, highways and other infrastructure assets into marketable securities, saying this would allow the government to borrow money by pledging future tolls and tariffs as repayment.

Carmelo Ferlito of the Institute for Democracy and Economic Affairs (IDEAS) told FMT he believed a progressive goods and services tax (GST) and capital gains tax would be the way to go.

He said the kind of progressive GST he was suggesting would be in the form of different rates for different types of items.

A progressive capital gains tax would see the taxing of profits made from the disposal of assets and shares, he said.

He noted that Malaysia’s gross domestic product (GDP) is driven mostly by domestic consumption at 58%, with private investments accounting for only 20%.

With Covid-19, both of these could drop though domestic consumption was likely to remain a key driver.

To allow the economy to rebound, he said, the government should adopt an even more business-friendly environment by opening up trade and offering incentives for foreign direct investment and local innovation.

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