One of the factors contributing to the persistent fiscal deficit in Malaysia has been the deliberate and gradual reduction of income tax rates over the years.
From a fairly progressive tax system, Malaysia has moved towards a regressive tax system. The government has trimmed the tax rates for the rich and super-rich over the years.
Singapore is now bucking the trend by raising income tax rates for high-earners by 2 per cent.
— MOFsg (@MOFsg) February 23, 2015
This simple increase to raise the upper band of the income tax rate will net the Singapore government an extra S$400m per year.
In contrast, look at what the Malaysian government has done. It has actually reduced the income tax rates for the upper bands:
No wonder the government now have to make up part of that shortfall in its budget by imposing hefty GST, which will hit the low-income group (who can’t afford RM1200 hair-dos, much less jetset around the world on shopping sprees) the hardest.
And don’t get me started on corporation tax, which was once again reduced by one percentage point from 25 per cent to 24 per cent. Such repeated reductions, along with clever tax avoidance schemes including transfer pricing and sundry corporate tax ‘incentives’ and ‘allowances’ have put a damper on government tax revenue collections. This, at a time when the ordinary rakyat will have to cough up 6 per cent in GST on much of their consumption expenditure.
No wonder we are not making much headway in tackling the wide income inequality in the country.