The government is not planning to raise the corporate and individual tax rates, prompting it to take a holistic approach to reform the country’s taxation system. Pix by Mikail Ong

PUTRAJAYA: The government is not planning to raise the corporate and individual tax rates, prompting it to take a holistic approach to reform the country’s taxation system.

Finance Minister Lim Guan Eng said the Tax Reform Committee (TRC) would be tasked with broadening and diversifying the Federal Government’s tax revenue, and minimising tax leakages, without burdening the rakyat.

“The gap in revenue collection must be addressed as it could prevent the government from carrying out its social and developmental mandate,” he said today.

“The government has already discontinued and deferred several costly infrastructure projects due to revenue constraints, while implementing a wider open tender system to control its expenditure.

“Since the Federal Government is not planning to raise the corporate and individual tax rates, the government is taking a holistic approach in reforming its taxation system to address this matter.”

Lim also announced the appointment of Tan Sri Hasmah Abdullah as the chairperson of TRC.

“Hasmah has 37 years’ worth of experience in tax administration, five of which as the the Inland Revenue Board (IRB) director-general,” he said.

“The committee is joined by finance and tax experts Dr Verinderjeet Singh, Datuk Chua Tia Guan and Mr Amardeep Singh.”

Lim said Tax Department secretary Datuk Khodijah Abdullah, Tax Department deputy secretary Mohd Sakeri Abdul Kadir, and Fiscal and Economic Department deputy secretary Mohd Hassan Ahmad would represent the Finance Ministry.

The main objectives of the committee include reducing the tax gap, addresssing tax leakages, exploring new sources of revenue, studying the taxation of the digital economy and reviewing the effectiveness of tax incentives provided by the law.

He said the abolition of the Goods and Services Tax (GST) would reduce tax collection by RM23 billion next year, but reduce the financial burden previously placed on the rakyat, especially the lower income group (B40).

“A comprehensive study on the Malaysian taxation system is needed to make it more efficient, neutral and progressive, as well as capable of generating high-quality growth to improve the well-being of the rakyat,” he said.

“This government will ensure that it has sufficient and stable revenue sources to meet all of its future obligations and safeguard its fiscal sustainability while fulfilling the aspirations of the rakyat.”

Any new tax under consideration, Lim said, must be efficient, neutral and progressive to promote long-term sustainability, productivity and economic growth.

“If implemented properly, any tax measures can be more targeted and more progressive. Most of these tax measures are already being pursued by developed and neighbouring countries.

“More importantly, these tax measures should not add a further burden to the lower income group.”

Lim said the government would strengthen enforcement and compliance measures against fraud, tax evasion and the smuggling of controlled items, which contribute to the loss of revenue.

“Malaysia faces revenue loss due to direct smuggling of contraband goods and indirect smuggling where some exporters make false declarations or produce fake invoices,” he added.

“These are usually facilitated by shipping, forwarding and transport agents. Streamlining and strengthening enforcement actions are key in combating smuggling activities at our land and sea borders.

“Greater focus will be accorded on material cases of tax evasion, particularly on companies that are abusing transfer pricing and tax planning activities.

“Fighting all networks engaged in smuggling activities and tax evasion requires joint efforts between the authorities.”

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