Issues and Ethics in Finance (Fin657) Assignment 1

ISSUES AND ETHICS IN FINANCE (FIN657)
Assignment 1
‘The State of The Nation: New Taxes Not the Only Way to Increase
Revenue’
Prepared by:
NAME :
PROGRAM/CLASS : BA242
STUDENT ID :
IC :
Prepared for:
PROFESSOR MADYA DR
Due:
October 31, 2021
1
Table of Content
Contents Page
The State of The Nation: New Taxes Not the Only Way to Increase Revenue 3-4
References 5
2
The State of The Nation: New Taxes Not the Only Way to Increase Revenue
Taxation is, by and large, the most important source of government revenue in nearly
all countries. According to the most recent estimates from the International Centre for Tax
and Development, total tax revenues account for more than 80% of total government
revenue in about half of the countries in the world and more than 50% in almost every
country (Ortiz-Ospina & Roser, 2016).
An article by Esther Lee (2021) discussed about the introduction of new taxes may
not be the perfect solution to fix the collapse in government revenue. As the economy has
deteriorated, the Covid-19 pandemic has resulted in a decrease in government revenue as
spending have rose substantially in an attempt to contain the outbreak. Malaysia tax revenue
in June 2021 was reported at $9.7 billion compared to $14.2 billion in January 2021.
According to the article, new taxes will only be introduced by the government after a
comprehensive review of their possible impact on the general public.
Deloitte Malaysia’s tax leader Sim Kwang Gek has stated that many businesses are
still facing challenges and any new taxes would be undesirable. It could also result in
adverse implications for the longer term despite the short-term gain in tax revenue. It would
be inefficient and structurally damaging to the economy to impose additional taxes on firms,
or increase requirements on existing taxpayers. At this point, businesses should be able to
make profits and reinvest them in working capital or new investments, giving them the
chance to grow and pay taxes. High marginal tax rates can discourage people from working,
saving, investing, and innovating. If everyone refused to spend, businesses would eventually
fail and employees would be laid off. There would be no one for the government to tax.
The article also highlights the challenges on finding the balance between the
implementation while maintaining the country’s business-friendly and competitive status, and
addressing the problems encountered by the people, especially the B40 group. EY Asean
Tax Leader and Malaysia tax managing partner, Amarjeet Singh believes that there is still
heavy reliance on taxpayers to declare their income or gains for tax purposes that led to a
large leakage of tax revenue. The shadow economy accounts for 18% of Malaysia's GDP in
2019. This equates to almost RM250 billion. He believes the government can seal the leak in
a variety of ways.
While KPMG Malaysia head of tax Tai Lai Kok does not think new taxes are around
the corner, active enforcement measures on tax evaders should be taken, as well as on the
shadow economy, which covers economic activity that occurs outside a country’s rules and
regulations. Advanced technology can be utilised to address specific sectors and individuals
in the shadow economy, restoring faith in the system and improving taxpayer morale.
3
Instead of imposing more taxes, the government should ramp up the country's tax
administration's digitisation. With the digitalization, authorities now have technological
capabilities that allow them to incorporate taxing procedures into the systems that taxpayers
use in their everyday lives and businesses. Tax will be built into taxpayer natural systems,
making paying taxes a more simple and automated process over time. Reforming a
country's tax system may lead in attracting business and investments, encouraging
entrepreneurship, fostering creativity and job creation, and removing deadweight expenses
and red tape that stifle growth.
The other approach is to generate new revenue by bringing the RM250 billion
shadow economy into the formal economy. Non-registered firms, under-reporting of
company income, undisclosed sources of income, and illegal trafficking make up the majority
of Malaysia's shadow economy. The increase in tax revenue that would result if these
activities were included in the tax system would be the alternative way of introducing new
taxes.
Alternatively, Deloitte's Sim believes the Goods and Services Tax (GST) should be
reintroduced at lower rate with a gradual increase over time at 4% or 5%. Luxury products,
which should be affordable to the wealthy, could be subjected to a higher GST rate. The
perceived regressive nature of GST can be addressed by zero-rating essential items and
ensuring that GST collected is channelled to the deserving ones (Esther Lee, 2021). The
primary focus here is to put in place a comprehensive indirect tax system in order to
increase revenue in the future, rather than to achieve tax neutrality when it is reintroduced.
In the early 1990s, Singapore, for instance, took a similar step. Singapore's government
implemented a 2% GST that applies to all products and services. Following then, the rate
continuously grew in pace with the rising economy.
While it is critical to build a framework for broadening the country's tax base in the
long run, immediate steps may be made to increase tax compliance, which will help to
address the issue of fiscal sustainability. In my opinion, if the government is serious about
increasing tax collection or imposing new taxes, it should target corporations that have
generated massive profits during the pandemic, or the privileged who can afford to pay the
tax since their wealth is expanding. People especially from the low-income group will not be
badly affected by the imposition of a new tax or any reformation if they are exempted.
4
References
Lee, E. (2021, October 18) The State of the Nation: New Taxes Not the Only Way to
Increase Revenue. The Edge Markets. https://www.theedgemarkets.com/article/state-
nation-new-taxes-not-only-way-increase-revenue
‌Ortiz-Ospina, E., & Roser, M. (2016, September 20). Taxation. Our World in Data
https://ourworldindata.org/taxation#citation
Sunbiz. (2021, October 24). Not The Time to Introduce New Taxes. The Sun Daily.
https://www.thesundaily.my/business/not-the-time-to-introduce-new-taxes-YN8492188

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