Yeah Kim Leng, professor of economics at Sunway University, said Malaysia’s income tax collection ratio has decreased from 18% in 2001 to the current 10%-11% estimated for 2021.

This year, the government has set a RM143.9 billion collection target for the Inland Revenue Board. Given the government’s target of 6.5% to 7.5% growth in gross domestic product, a RM143.9 billion target would account for around 10% of the estimated GDP.

“It reflects the narrowing direct income tax base of corporate and individual taxpayers as well as a periodic reduction in tax rates to remain competitive as neighbouring countries lower theirs.”

Yeah said although the government would need money to help with economic recovery efforts, introducing new taxes was not an ideal solution.

He added it would be better for the government to increase tax administrative efficiency, curb tax evasion and reduce the size of the underground economy.

“With the existing tax structure in place, the tax revenue is expected to rise in tandem with the pick-up in economic activities,” he said, adding this includes revenue from the digital service tax.

Yeah said once the economy is stronger, the government should look at tax reforms including the GST, as well as the possibility of introducing capital gains and wealth taxes.

“As the knowledge base and infrastructure are already in place it would not be too costly or difficult to switch back to GST provided its implementation deficiencies are remedied.”

He believes it is only a matter of time before GST is brought back given its advantages and merits.

Geoffrey Williams, an economist at Malaysia University of Science and Technology also said the government should look to reform the tax system and better balance income and consumer taxes.

“At the moment, the scope for higher taxes is quite limited. Improving tax collection and cutting leakage and avoidance will have to be the main emphasis from the revenue side.

“There are social as well as economic considerations, and tax competitiveness versus our competitors is also important given the foreign direct investment issues related to that.”

He said the way forward was through consumption taxes like GST as it was more efficient.

“This is because people avoid declaring income but do not avoid spending. So consumption taxes, in general, are likely to be a better option.”