KUALA LUMPUR: The government can opt to introduce new taxes or re-implement the goods and services tax (GST) to overcome the decline in government revenue for the past years.
According to a monthly report by the Centre for Market Education, government revenue reached values above 30 per cent of the gross domestic product (GDP) in the early 1990s but has dropped slightly below 20 per cent to date.
Economist Dr. Geoffrey Williams said the lower revenue was due to a faster expansion in the economy versus the government's income and spending.
He added taxes are generally low and the government has other income from Petroliam Nasional Bhd (Petronas) royalties.
"This is a good thing and means more of the value-added stays with the rakyat rather than being taken by the government where there are problems of wastage, leakages, and corruption.
"It is not necessary to increase revenue; the focus should be on cutting spending through subsidy rationalisation, prioritising key areas, and reducing wastage, leakages, and corruption," he told Business Times.
New taxes such as an e-payments tax (EPT) should be used to replace old ineffective taxes such as the sales and service tax (SST).
He said a one per cent EPT rate would raise RM13.9 billion, which would be enough to end individual income tax for everyone below the T20 threshold and still leave RM7.5 billion for extra spending on health, education, and social protection.
"A 2.25 per cent effective EPT rate, added to the existing SST, can raise the same revenue as reintroducing the goods and services tax (GST) but may add unnecessary complexity.
"Instead, a simple 3.0 per cent EPT would raise RM41.7 billion, enough for zero income tax below T20 levels and full abolition of SST," he said.
Williams noted any EPT over 2.5 per cent can replace SST and fully abolish the current 10 per cent tax on goods and 8 per cent tax on services, which would in turn lower prices for consumers across the board.
He added that if Malaysia changed its tax system, it could potentially become a tax haven and attract foreign investors while also keeping taxes for locals low.
"The key to success is efficiency and effectiveness in the tax system, not the percentage to GDP," said Williams.
Meanwhile, Institute Masa Depan Malaysia fellow Dr Shankaran Nambiar said the "ggovernment can increase revenue through direct taxes, which is one of the major sources of income for the country, but it is limited.
This is because the government would not want to burden companies with further taxes. Further, he noted it is not the right time to increase individual income tax.
"Thus, the burden falls on indirect taxes. The SST is a major source of revenue within this component.
"We know the SST does not generate as much as the GST would. Therefore, GST, logically, should be the best candidate.
"It is true that GST is regressive, but then so is the SST. There are two ways out of this: either boldly undertake taxes that are progressive or introduce a GST that has progressive features," he said.
Nambiar added another option is for the government to cut its expenditure, although that is not a favourable move.
"If enough is not done, we might find it difficult to raise government revenue to earlier levels. We might have to cut government expenditure, again an option that we would like to avoid," he said.