It’s a balancing act whether to raise taxes, says Guan Eng

Finance Minister Lim Guan Eng delivering his keynote address at the Inland Revenue Board’s state directors’ conference at a hotel in George Town, Penang, today.

GEORGE TOWN: Finance Minister Lim Guan Eng says the government is forced to do a balancing act before making a decision on whether to raise taxes as the country continues to record one of the lowest tax collections in the world compared to the size of its economy.

He said while the Inland Revenue Board (LHDN) had collected RM145 billion in 2019, the highest ever in its history, international monitors considered it a small amount when compared to the size of the economy valued at RM1.35 trillion last year.

In a speech at an LHDN event, Lim said based on the World Bank’s 2017 data, Malaysia’s tax collection was at 13.1% compared to the GDP, lower than Vietnam’s 19%, Chile (17.4%), Poland (16.8%) and Korea, 15.4%.

He said the the country’s low tax collections were due to “aggressive” tax incentives, generally low tax compliance, and tax evasion.

“When we collect a lot of tax, the rakyat does not like. When we collect less, the reporters ask us why we are not collecting more.

“We are caught in the middle. We try to collect taxes reasonably. While wanting to collect more, we do not want to be too harsh so much so that we are called cruel and what not.

“We do not plan to squeeze everyone dry, (we will decide on raising taxes) based on economic growth. There must be a balance so as not to burden the people too much.

Meanwhile, Lim said the country’s economy was expected do better this year compared to 2019 with a targeted GDP of 4.8%, despite a lower fiscal deficit target of 3.2%.

Last year’s GDP was 4.7%.

Lim said the economy was expected to grow to RM1.6 trillion, while the government was expecting to rake in a revenue of RM244.5 billion, including non-revenue taxes amounting to RM54.6 billion.

He expected the digital economy to contribute 18.2% to the GDP this year.

Lim said the LHDN was expecting to collect RM154.6 billion in taxes this year, compared to RM145 billion previously. The 2019 collection, however, was a RM8 billion increase from the year before.

Earlier, Lim opened the LHDN’s state directors’ first yearly conference at a hotel here, revealing a taxpayers’ roadmap of standard operating procedures to be followed.

Lim also announced a RM218 million modernisation programme for the LHDN for IT-related upgrades, including data analytics and automation of processes.