Guan Eng: IRB to pursue unpaid taxes from shadow economy

KUALA LUMPUR: The government is serious about tackling problems caused by the 'shadow economy' in Malaysia which is estimated to be a fifth of the officially reported RM1.45 trillion gross domestic product (GDP).

Finance Minister Lim Guan Eng said studies have shown the shadow economy here is quite sizeable, making up 21 per cent of our GDP, adding that the Inland Revenue Board's (IRB) collection is compromised by the shadow economy in Malaysia.

Guan Eng further cited that studies conducted by the World Bank shows the shadow economy typically accounts for about 20 per cent of developing nations’ official GDP.

The shadow economy refers to goods and services which are paid in cash, and therefore, remained unreported for taxation.

It also encompasses undeclared income from freelancing work, illicit activities like prostitution, sale of illegal drugs, smuggling of cigarettes and liqour as well as bribe-takings.

"The IRB has to make full use of Big Data Analytics to track down unpaid taxes in the shadow economy," Lim told reporters after officiating at the opening ceremony of IRB's National Tax Seminar here today.

The minister reiterated that the government has to expand its revenue base and reduce tax gaps to ensure sustainable collection for the country's development.

"Under the 2020 Budget, the government is rationalising tax incentives, seeking to reduce tax leakage and improve on compliance via more effective auditing," he added.

Lim wants IRB to improve on compliance by introducing the Tax Identification Number to all businesses and individuals aged 18 years old and above, from the year 2021.

Malaysian Association of Tax Accountants (MATA) president Datuk Abdul Aziz Abu Bakar concurred with Lim that the shadow economy undermines tax collections.
Malaysian Association of Tax Accountants (MATA) president Datuk Abdul Aziz Abu Bakar concurred with Lim that the shadow economy undermines tax collections.

When met at the sidelines of the seminar, Malaysian Association of Tax Accountants (MATA) president Datuk Abdul Aziz Abu Bakar concurred with Lim that the shadow economy undermines tax collections.

Abdul Aziz estimated the size of Malaysia's shadow economy to be as big as RM300 billion, based on the back-of-envelope calculation, adding that such unreported business earnings make up 21 per cent of the GDP.

He explained forensic accountants leverage on Big Data Analytics linking information from various government agencies to track money spent, that is not accounted for in recorded transactions, to estimate the breadth of the shadow economy.

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