While Malaysia is currently undergoing a lot of political turmoil, bickering and undermining, I hope the government is still working hard to solve the critical economic issues confronted by the nation. While we acknowledged that some of these economic issues such as the acute inflation led by oil price hike is due to a global phenomenon, we still believe that there is a lot our government could do to help relieve our pain, particularly due to the fact that we are a net oil exporting country!
One of the critical issues here is for the government to re-look at the unfair tax system of personal income tax and to restructure the whole tax revenue collection so that no single group is being penalised while government is finding ways to balance the nation’s income and expenditure as a result of oil subsidy removal.
If we simply divide the Malaysian population into three income groups - high, middle and low, then with the recent oil price hike it is believed that the middle-income group is the worst hit one. First of all, the high income group - which is the richest group of people in our society - is always inflation-proof. The lower income group is generally taking public transportation of which the fares are still being protected by the government.
Of course, I also agree that the government should do more to raise the minimum salary and come out with a more effective housing scheme for the lower income group as most people spend at least one third of their salary paying housing loans or house rentals.
So who are the middle income group people? It is reported that the Inland Revenue Board (IRB) collected about RM10 billion in personal income tax which is contributing 7% (only) of the government’s total inland revenue of RM147 billion. This is paid by approximately 1.1 million working class people out of a total eleven million strong work force. In other words, only one out of 26 people in this country pay income tax.
Out of the 1.1 million, only approximately 38,000 taxpayers pay the top bracket of 28% hence I would classify the rest of the 1.1 million as the ‘declared’ middle-income group However, please take note that there are also many ‘un-declared’ middle-income groups of people that do not pay a single sen of personal income tax due to the present unfair tax system.
Personal income tax collection should be abolished based on the following reasons:
1. Firstly, in our country, individuals with a chargeable income of less than RM2,500 are not taxed. The chargeable income of an individual is arrived at by deducting from his or her total income less the personal relief. The tax liability of an individual is further reduced by rebates. The question here is that how many Malaysian are actually having a chargeable income of more than RM2,500 but have yet to be detected by the IRB?
They represent a large number of small retail businessman, petty traders and others. How much resources will the IRB need to track down these groups of people? We must also understand that there is little that the IRB can do to this group in view of its complexity! So is the system being fair to those honest wage earners that are subject to the Scheduled Tax Deduction Scheme (PCB) i.e. tax to be deducted from the monthly salaries and remitted to the IRB by the employer?
2. Secondly, in the present system of self-assessment, the wage earners are given the ‘responsibility’ to compute their own tax liability. So another question here is, how many will actually compute honestly as per their relief entitlement? This system requires large inland revenue department staff and resources to double-check and again it is not being fair to those who have made honest declaration vs those who did not.
Already, according to IRB officers recently, there are some taxpayers who have submitted the self –assessment by making maximum claims on the rebates ceiling allowed.
To me, instead of wasting so much time on the 7% of the revenue and based on 80/20 Pareto theory, the IRB staff and their resources should be better utilised for catching the ‘bigger fish’ ie, tracking tax on other revenues like company tax that are proportionately much larger revenue contributions and are easier to track. The IRB should also look at tax revenue that is straight forward and less disputed. Their resources should be channeled to check and study the following areas and ensure Malaysia has an effective and just tax system:
1. Oil revenue – It is reported that Petronas made RM86 billion in 2007 and this figure is supposed to increase by at least 30% in 2008. Isn’t it important for the IRB to monitor the tax collection of one big customer effectively rather than 1.1 million ‘small fry’?
2. The recent move by government to collect windfall tax from plantation companies due to the unprecedented rocketing palm oil prices is much lauded. This is exactly some of the creative ideas that government should have in re-distributing nation’s wealth to all the rakyat!
Another area that government should step up its political will is to increase substantially the sin tax quantum on cigarettes, alcohol and gambling as these few products or services should certainly be regarded as non-essential in our life.
3. It is high time for the government to re-look and introduce GST especially on luxury goods and services. This is most fair to all citizens as we pay tax at the point of spending. Most developed countries have a effective GST system to ensure nobody is spared from contributing to the government as their income increases.
4. With the abolishment of personal income tax the question asked is obviously why should the higher income group be entitled to it? Together with the GST mentioned above, the government could recover from this rich group by raising the stamp duty for expensive house (eg, properties above RM400K) and also raising the sales tax for expensive cars (eg, cars above RM200K).
There are of course many more areas government could think of in reaching out to the rich group.
With the above facts and figures presented, I sincerely look forward to the government in making a decision to abolish the collection of personal income tax. This policy will certainly relieve the pain of the needy group with the spiraling cost of living following the fuel price increase while promoting a fair and just society.
This policy would also have much wider positive economic impact at the macro level by further boosting domestic spending besides raising the Malaysian standard of living as a whole.
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