KUALA LUMPUR: Malaysia's tax mechanisms must be accompanied by clear communication and strategic roll out to prevent any adverse shocks to the economy, an expert said today.
Amidst ongoing efforts to address the country's fiscal deficits, despite positive gross domestic product (GDP) growth, is a heightened focus on fiscal consolidation, said Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid.
He said Malaysia's tax-to-GDP ratio currently stands at 12 per cent, below the benchmark of 15 per cent, suggesting there is room for enhanced tax collection.
"Indeed there is room for us to still accommodate in terms of tax collection, but introducing tax mechanisms without proper communication and strategic planning could shock the economy," he said.
The economist shared one factor the government must seriously consider is the country's sovereign rating, "which is crucial for attracting foreign investments and hinges on fiscal discipline."
"The lack of political will to enact reform measures could result in a downgrade by Credit Rating Agencies (CRAs) such as Moody's, S&P, and Fitch Ratings, potentially impacting the Malaysian Ringgit.
He added the long-term effect of not implementing reform measures will result in rating downgrades and selling off of assets by foreign investments, which may potentially affect the ringgit.
The Dewan Rakyat was told today that the government has no plans to revive the Goods and Services Tax (GST) which was abolished in 2018.
However, Finance Minister II Datuk Seri Amir Hamzah Azizan said the government remains committed to a progressive approach, focusing on targeted subsidies and taxation.
This could be seen as a step forward after the Public Finance and Fiscal Responsibility Act was implemented last year, signalling a proactive stance by the government.
The Budget 2024 presentation also underscored the commitment to mitigating the impact of rising prices, particularly through the increased allocation for Sumbangan Tunai Rahmah (STR), which has been raised from RM8 billion to RM10 billion.
Furthermore, Amir added that the Luxury Tax will be imposed at a rate of five to 10 per cent based on specific threshold values for each commodity.
Tax experts have remained cautious in commenting further on Amir Hamzah's suggestion to expand the tax base to those with a higher ability to pay until more information on the mechanism is available.
"I can't comment at the moment as not much information on the mechanism is available for the time being," said tax expert Renganathan Kannan.
"There is no right or wrong in the methods to indicate the value threshold for the luxury goods but there are complexities," said another tax expert Eng Yew Tan.
He said the bigger question to ask right now is how does the government plan to impose the Luxury Tax.
"Is in on the import or retail level? Do you use the current mechanism through the sales tax or create a new one? What sort of module is being considered?"
While measures like the Luxury Tax aim to shield low-income groups, Afzanizam said there is recognition of the broader implications of price escalations.
He said the government must not take the communication plan too lightly in addressing the blueprint of the country's tax mechanisms.
"There remains a pressing need for the government to refine its tax policies, especially considering the potential repercussions of price hikes," he added.