GEORGE TOWN: Finance Minister Lim Guan Eng today said there is an urgent need for the world’s mobile payment systems to share data with governments to prevent money laundering and tax evasion.
Lim said countries run the risk of losing “complete economic sovereignty” following the ease of one-click money transfers to any part of the world offered by fintech companies today.
A data-sharing platform must therefore be developed so that countries can monitor capital flows and not be under the thumb of multinational corporations.
With data sharing, he said, tax administrators would be able to catch tax evaders and monitor for compliance.
“When you don’t use regular payment systems, and you use mobile ones, then you don’t have to buy currency. Just click one button, and you lose complete economic sovereignty.
“You are now at the mercy of companies, and the countries lose control. With the amount of data that these companies such as Facebook and other giants have, can you imagine the trouble we would go through in accessing them?
“That is why we need a uniformed, multilateral platform to address this issue. We need to look at all the latest tech, fintech, blockchain … whether it is Facebook or other giants,” he told reporters after opening the Commonwealth Association of Tax Administrators’ (CATA) 40th annual technical conference at a hotel here today.
The conference is hosted by the Inland Revenue Board (LHDN).
Lim said the World Bank and the International Monetary Fund had yet to find a solution on this issue, hence the need to discuss and deliberate about it at length on a global scale.
He said there were other challenges involving digital businesses as the current tax laws were designed around brick-and-mortar businesses, and the government needed to update laws to preserve revenue.
A taxable nexus was needed, he said, because of the “mismatch” between locations of internet-based companies and where the taxes are paid.
Earlier, Lim told the conference that Malaysia’s tax collection was at 12% of the GDP, lower than experts’ recommendation of 15% to 20%, with the OECD countries averaging 34.3% of the GDP.
Despite this, he said, Malaysia’s government revenue relative to the GDP stood higher at 16%. He said the Tax Reforms Committee was working on plugging tax losses and gaps.
Lim said base erosion and profit sharing (BEPS) remained the biggest challenge among governments in the world, through tax planning strategies to shift profit away to another jurisdiction, causing US$240 billion in lost revenue around the world.
Malaysia, he said, was facing a large shadow economy of around 21% of the GDP, with richer countries at 15%, and poorer countries at about 6%.
A shadow economy means goods and services usually paid in cash and not declared to be taxed. It includes legal work such as part-time jobs and illegal work such as gambling, bribery, purchase of drugs and partaking in the flesh industry.
He said Malaysia’s 21% shadow economy was equivalent to close to RM300 billion, a number he derived from the country’s 2018 economy valued at RM1.45 trillion.
“If we were to integrate even a fifth of the shadow economy into the formal sector, we can bring RM5 billion to RM15 billion worth of additional revenue to the government,” he said.