The report on the federal government’s fiscal outlook and revenue evaluations and estimation showed some shocking statistics on the true state of taxes.
Out of the 1.25 million companies, some 62.4% or 780,742 are registered with the Inland Revenue Board (IRB), of which only an insignificant 61,000 or 7.8% were liable to pay taxes as of end-2017. The ratio is much better for the personal income tax.
Out of a workforce of 15 million, barely 16.5% or less than 2.5 million people are accountable or subjected pay to taxes.
Malaysians have all along been mindful and aware that a vast majority of individuals and companies are not subjected to taxes. Nevertheless, the numbers are growing according to a study going back to the year 2000. The trend is unhealthy for the country that is still dependent on oil money to grease and push the economy.
Regionally, Indonesia is the country with the lowest ratio of tax collected compared to the GDP. The tax revenue is only 3.4% of the country’s entire output of the domestic economy.
The reason why most of the Malaysian companies or individuals do not pay taxes is that the existing set of rules permits a generous set of incentives and relief that lets companies minimize or dodge their tax bill.
The rules additionally do not take into account the informal economy, which leads to leakages and loopholes within the system.
The informal economy in Malaysia is just beginning to grow. Tracing the leakage at this juncture is critical if the lopsided tax system is to be repaired. Towards this end, the Tax Reform Committee (TRC) of the government is looking at levying services tax on offshore companies offering digital services.