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Tuesday August 18, 2009

Govt must reform tax; introduce GST or VAT says MIER


KUALA LUMPUR: The Government has to seriously look into tax reform in the country and announce it in the upcoming Budget 2010, says a senior economist.

“I think we need a serious tax reform in the country. We need to introduce goods and services tax (GST) or value-added tax (VAT) as soon as possible,” said Prof Emeritus Datuk Dr Mohammed Ariff Abdul Kareem, executive director of the Malaysian Institute of Economic Research (MIER).

He also said he believed tax collection this year would fall short of the Government’s target.

“If tax collection is lower than the planned target and expenditure is higher than the proposed amount, then chances are we are going to run into a bigger deficit than the 7.6% the Government is hoping for.

“The deficit will probably touch or exceed 8% this year but the problem will be far worse next year because this year’s tax collection will be based on last year’s collection and next year’s will be based on this year,” he said in an interview.

“With growing government expenditure, including development expenditure and declining revenue, we may have a double digit ratio of debt to gross domestic product (GDP).”

Ariff said the Government should announce it (GST) in the budget because the sooner the better.

“Of course this is a wrong time to introduce GST simply because the economy is contracting but it is important that we plan now for the introduction later. We should have a clear time-table. We don’t seem to have one at this moment,” he said.

The Government should aim to implement VAT by 2012 at the least when the economic recovery would hopefully be in place.

“We need lead time to prepare. We cannot just implement it overnight. We need at least two to three years’ preparation,” Ariff said.

On requests to reduce income tax and corporate tax, Ariff said the Government needed to replace it with something else to increase revenue.

“This is why we need GST introduced. The Government has to have long-term planning,” he said, adding that MIER was really worried on tax-based revenue. — Bernama

“It is very narrow now, with 41% of the government revenue coming from oil and gas. I think this is very dangerous, depending so much on just one source,” he said.

Ariff also said personal income tax, corporate tax, shares and economic growth had been declining as the Government had been adjusting downwards the tax rates.

Currently, the Government collects 25% corporate tax and 27% individual income tax.

“Come next year there is an indication the Government intends to cut corporate tax and individual income tax further. Many people are now out from the income tax bracket. People earning less than RM3,000 don’t have to pay tax at all.

“This is why we need to think seriously about revamping or restructuring our tax system,” Ariff added.

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