Tax collection could be raised without resorting to additional new taxes such as capital gains tax, wealth tax and the reintroduction of goods and services tax (GST) by addressing tax non-compliance and systemic inefficiencies. Increased tax collection is critical in order to finance the sustainable development and transformation of the nation.
To support higher tax collection, “The shadow economy and tax administration are the immediate areas which we should be looking at while we push the economy forward. No other taxes should be implemented until we reach the status of a high income and highly-developed nation,” stated MIA President Dr. Veerinderjeet Singh at the recent Malaysian Tax Conference 2021, during a panel session entitled: Reconstruction of the Malaysian Tax System: Where are We Heading?
It is estimated that the shadow economy or informal economy could be equivalent to about a third of Malaysia’s GDP, and hence regulating it could generate hundreds of millions in tax revenue. However, this will require stronger enforcement to boost tax compliance.
Transforming tax administration through digitalisation and technology adoption such as the application of data analytics is imperative to enhance tax operations and enforcement. Using data analytics could shift the onus for generating tax returns from the taxpayer by enabling tax authorities to compute the tax payable in real-time, for example. To optimise the use of data analytics, government ministries and agencies should be more integrated, cut through silos and share data. Greater inter-ministerial and inter-agency coordination and data sharing will lead to more efficient enforcement and better compliance.
Another key recommendation made during the panel is for tax authorities and regulators to prepare a Tax Blueprint, which will set the agenda for tax policy, and a supporting Roadmap for Implementation. This will apprise stakeholders especially taxpayers of the planned changes and provide sufficient time for transitions and education. This Blueprint and Roadmap should be combined with very clear communications processes, public relations and awareness building campaigns, and reporting mechanisms on the tax spending and outcomes to build transparency, governance and taxpayer trust. Comparative studies on tax policies of different countries show that it takes between 2 to 7 years for the benefits to be realised and the authorities should have the resilience and patience to stick to the plan even if negative feedback is received.
Apart from Dr. Veerinderjeet as moderator, the panel featured Amarjeet Singh, EY Asean Tax Leader and Malaysia Tax Leader, Ernst & Young Tax Consultants Sdn Bhd; Roszita Dim, Deputy Director of Customs, Service Tax Policy and Implementation Branch, Internal Tax Division, Royal Malaysian Customs Department, and Prof Dr. Yeah Kim Leng, Professor of Economics and Senior Fellow, Jeffrey Cheah Institute on Southeast Asia.
In addition to advocating for restructuring, Dr. Veerinderjeet stressed that tax practitioners must be aware of the latest developments and risks in the global tax environment in his presentation on Tax Governance Developments for Corporations.
“Corporate tax has become a leading governance consideration, specifically in terms of corporate income tax responsibility; and disclosure targeting aggressive tax strategies,” he said. As such, Boards should include tax risks, tax governance and tax transparency within the scope of their accountability. Board Audit Committees especially should take the lead in strengthening tax governance of listed entities with the ultimate aim of enhancing value to investors in many aspects such as tax administration and compliance. “Audit Committees and Boards should consider requiring listed entities to issue a Tax Risk Policy Statement or a Tax Strategy Statement in their annual reports,” recommended Dr. Veerinderjeet.
He also advised Boards to pay attention to ESG (environmental, social and governance) considerations. “Given the increasing momentum of ESG, it is likely that the Malaysian regulatory institutions will encourage listed entities to uphold the ESG framework including ‘tax transparency’ so as to enhance their value to all investors.” As a benchmark, the FTSE Russell Environmental, Social and Governance (ESG) Ratings already include ‘tax transparency’ as one of the factors to be considered under the ‘Governance’ aspect of the ESG Ratings. In line with this, the FTSE4Good Bursa Malaysia Index launched in 2014 encourages best practice disclosures as does the GRI Tax Standard.
“As advisors to corporations, tax practitioners need to be aware and prepared for these potential changes and possibly the move to cooperative compliance (for very large multinational entities) and greater tax compliance measures for large taxpayers related to tax controls embedded in the accounting system,” concluded Dr. Veerinderjeet.
The two-day virtual Tax Conference featured topics ranging from the OECD/G20 Inclusive Framework on BEPS (base erosion profit shifting) and Pillars 1 and 2 in response to the tax challenges of the digital economy to tax big data, updated transfer pricing regulations and tax self-regulation. This annual Conference was jointly organised by the Malaysian Institute of Accountants and the Malaysian Association of Tax Accountants and officiated by Datuk Mohd Nizom Sairi, Deputy Chief Executive Officer (Tax Operations), Inland Revenue Board of Malaysia who delivered the keynote address.