Wednesday, April 29, 2009

Malaysians are poor – based on our tax records

Only 1 million or so Malaysians pay tax. That’s 10% of the working population. Take a look around you. 9 out of 10 adults you see don’t pay tax. That’s a phenomenally narrow tax base. 1 million Malaysians are paying for the government services for all 24 million of us; 26 million if you include the (legal) foreigners.

Or perhaps it’s more accurate to say 1 million Malaysians are paying for the “work” done by our government, which includes trips to Disneyland, Mount Everest and other exotic locations.

Hafiz Noor’s musings on income tax got me thinking.

Firstly, are the vast majority of Malaysians that poor, that 9 million working Malaysians don’t pay tax?

Secondly, if the core issues are not addressed, more and more Malaysians will do their utmost to avoid tax. Because, we don’t seem to be getting our money’s worth.

One function of taxation is to raise revenue to fund social services such as roads, schools, hospitals and security. Yet, in Malaysia, we 1) pay tolls, 2) are forced to send our children for private education, 3) go to private hospitals when we are very ill and 4) engage private security to patrol our home neighbourhoods because of the rising crime rates. Another function is redistribution, that is to take from the rich to help the poor. No right thinking human should be against that. But how much of that do we see going on in Malaysia? We see billions of ringgit being squandered on follies and some scandal or other; and on the other hand there are so many obvious examples of poverty.

So, where did all our tax money go? This lack of accountability fuels the sense of injustice by the taxpayer and increasing efforts to avoid or downright evade tax. Why pay tax when “the government is going to waste it anyway”?

Which brings me to the broader, third issue. There are about 12 million eligible voters. The fact tbat only a fraction of these voters pay taxes is fertile ground for populist politicians offering voters short-term goodies at the expense of longer term economic disaster.

Voters will be tempted to vote for whoever offers cheap petrol/electricity/[insert whatever you want here] because they don’t have to cover the cost. The only way the costs can be covered would be to raise taxes. Our taxes, once you factor in the indirect taxes, are already among the highest in the world. Raise them further and the brain drain will get worse. We will face economic ruin when our best and brightest are all gone.

How can we get around this? One – break the addiction to cheap foreign labour so that Malaysians can move up the value chain and earn enough income to pay taxes. Two - accountability by the government – so we know where our tax money is going and feel we have a stake in its spending. Dare we hope for the report on the Port Klang Free Zone problems to be made public; and just as importantly, the people responsible held accountable and penalized?


Anonymous said...

I am one of the "idiots" that pay tax. Really irritates me to pay so much tax (tens of thousands) for such a Govt, civil service and Khir's "mickey mouse" trips.

Anonymous said...

I am one of the "idiots" that pay tax. Really irritates me to pay so much tax (tens of thousands) for such a Govt, civil service and Khir's "mickey mouse" trips.

Purple Haze said...

Correct me if I am wrong, but my understanding is that some Muslims don't pay income tax but rather zakat or other forms of contributions. Hence, the 1 million figure that you quote might not capture everyone who "contributes".

Is there any way to clarify this ?

fred said...

This cant be right. Am i supposed to lose out for being honest and pay all my due taxes to IRB? I am the minority here, huh!?

Anonymous said...

Why am I paying tax to maintain a bunch of thugs (PDRM)?