Broaden tax base, boost indirect tax revenue, economist tells govt

An economist says sales and services tax alone is not sufficient for the country.

PETALING JAYA: An economist has urged the government to broaden the country’s tax base, in line with recommendations by the Organisation for Economic Co-operation and Development (OECD) to reduce reliance on oil-related revenue.

Speaking to FMT, Hoo Ke Ping said the sales and services tax alone would not be enough to sustain the country.

Referring to the 2014 drop in crude oil and commodity prices, he said it had been the goods and services tax that “helped the government to pull through”.

He was responding to a recent report by OECD highlighting the positive impact of increased coordination in environmental policy at the sub-national level and the opportunity for greater use of environmental taxation, notably a carbon tax.

The survey, which was presented in Putrajaya last month by OECD deputy secretary-general Masamichi Kono, discussed the need to make public finances more sustainable, improve skills acquisition, strengthen integrity and boost productivity.

It suggested that the government take steps to increase the low level of tax revenue, particularly by eliminating numerous tax exemptions and improving the efficiency of the tax system.

Hoo warned of a “forward indication of recession” in the low global demand for commodities, including palm oil, and the impact of the US-China trade war on the electronics sector.

However, he disagreed with OECD’s advice to eliminate energy subsidies, saying this could have adverse effects on the government.

“By removing subsidies, a government can be overthrown. You can’t do that,” he said, citing the move by Abdullah Ahmad Badawi to increase fuel prices during his tenure as prime minister.

Fellow economist Yeah Kim Leng said the concerns over sustainable public finances, skills acquisition and productivity are medium to long-term structural issues of which the government is aware.

At present, he said, the government’s priorities are to restore fiscal discipline and integrity without derailing growth and ongoing projects, while enhancing tax compliance and administrative efficiency.

“The need to raise consumption-based tax is not the current priority, but it will have to be part of the longer-term tax reform agenda.”