By Benedict Weerasena, Economist of Bait Al-Amanah
The surprise announcement of the “prosperity tax” has resulted in the recently adverse knee-jerk reaction with a cumulative RM33.8 billion of value wiped out.
However, this dampened market sentiment is for the short-term, provided that the Government commits to its promise that this will be a One-off Tax. This is because the prolonging of such a substantial hike in tax rate from 24% to 33% may be damaging to the corporate sector in the long-term. In addition, the continuation of the prosperity tax may impede Malaysia’s regional competitiveness.
On principle, the prosperity tax is aligned with the national vision of shared prosperity, whereby the extraordinary revenue of several industries is taxed to generate revenue towards a more equitable society.
However, it is of utmost importance that the revenue is spent wisely to strengthen Malaysia’s healthcare sector and provide assistance to vulnerable groups. Most importantly, there must be full accountability and transparency in fiscal management, in accordance with the newly announced Fiscal Responsibility Act.
All in all, the Government still needs to consider long-term measures to ensure fiscal sustainability, instead of resorting to introducing new taxes on an ad-hoc basis. As evidence, the one-off Prosperity Tax does not support long-term revenue generation for the nation.
Instead, well thought out tax reforms in addition to a possible return to a broad-based consumption tax in the medium term as the economy recovers are crucial to preserve fiscal sustainability.
*An excerpt of this opinion piece was reported in Free Malaysia Today. Please refer to the attachment below for the full FMT article by Imran Ariff: