KUALA LUMPUR: Tax revenue is the lifeblood of a country and its contribution enables Malaysia to support the United Nations' Sustainable Development Goals (SDGs), said PwC Malaysia tax director Pauline Lum.
She said the social impact of the Covid-19 pandemic had heightened focus on the concept of "fair tax", and its inclusion in climate, social and economic strategies for more resilient business models.
"This highlights the importance of the tax intersection with ESG which has led to efforts by governments and businesses to reinvent, invigorate and pivot to stay relevant.
"While the carrot and stick approach to taxation has proven to be effective in encouraging sustainable behaviour, it has been country-specific," Lum said in PwC's post-2022 Budget statement.
As anticipated, she said the 2022 Budget announcements included some building blocks for Malaysia's Environmental, Social and Governance (ESG) aspirations to become carbon neutral by 2050.
These include a RM1 billion fund to support SMEs in reducing their carbon footprint, setting up of Bursa Malaysia's Voluntary Carbon Market (VCM) platform to trade carbon credits and offsets.
The budget also includes tax incentives for electric vehicles (EV) to enhance energy efficiencies and RM7,000 tax relief for professional courses including ESG-related programmes.
Meanwhile, Lum said while much had been initiated at the level of countries, businesses and individuals to address ESG issues, greater alignment is needed to optimise outcomes.
"The UN's 26th Conference of Parties (COP26) is an opportunity for world leaders to take stock of actions so far to identify what else needs to be done to combat climate change, including tax," she said.
A new report by PwC and the World Economic Forum (WEF) which analyses the international carbon pricing floor (ICPF) highlights that presently, the cost of CO2/GHG emissions ranges between $0 to $130 per tonne, depending on sector and location.
"This disparity between higher, medium and lower income nations could result in carbon leakage, i.e. movement of business operations to countries with lower cost of CO2/GHG emissions.
"This may result in a shift of emissions as opposed to reduction, akin to shifting profit from higher to lower tax jurisdictions, which triggered actions to manage the base erosion of profit," it said.
To date, 136 countries have committed to a minimum corporate tax rate, setting precedence that international action is viable.
Lum said it was time for Malaysia to act, by defining and aligning carbon pricing to enhance the VCM, exploring potential "carrots" and clarifying tax transparency expectations.
"These may help to level the playing field for local companies to compete and trade in global markets where carbon taxes/other policing mechanisms may be in place," she added.