The Center for Market Education (CME) has proposed an overhaul of Malaysia’s tax system that would reintroduce the goods and services tax (GST), lower personal and corporate income tax rates and ease tax-related cash-flow pressures on small businesses.
The proposals, outlined in a policy brief by CME CEO Carmelo Ferlito, call for a revenue-neutral restructuring of the tax system by shifting part of the tax burden from income and corporate profits towards consumption.
CME said the changes should be implemented alongside expenditure reforms and subsidy rationalisation, with lower income tax rates phased in as additional revenue becomes available.
“Malaysia does not need more taxes. It needs better taxes,” said Ferlito.
He said the issue was not only how much revenue the government collected, but also through which channels and at what point taxpayers were required to give up their liquidity.
“A broad GST, lower income taxes and direct support for households in place of price controls would broaden participation in the fiscal system while improving the incentives that generate income in the first place,” he said.
GST proposed to replace part of income taxation
One of CME’s key proposals is to reintroduce the GST to replace the sales and service tax (SST), with a broad tax base, few exemptions, a sensible registration threshold, limited rates and faster, rules-based refunds.
CME said the GST should replace part of income taxation rather than become an additional tax burden.
The GST, a multi-stage consumption tax, was introduced in April 2015 at 6% before being zero-rated in June 2018 and replaced by the SST in September 2018.
The think tank also proposed reducing and simplifying personal income tax rates through fewer and wider tax bands, a higher tax-free or low-rate threshold, and lower middle and top rates.
Corporate and small business tax changes
CME proposed gradually lowering the 24% corporate tax rate to allow companies to retain more earnings for investment and expansion.
It also called for the removal of preferential SME tax rates based on shareholder nationality, which currently exclude companies with more than 20% foreign ownership.
For micro and small businesses, CME proposed abolishing monthly advance tax payments under CP204, allowing them to retain working capital until their actual tax liability is determined.
The think tank also recommended a low presumptive tax regime for informal businesses based on a small percentage of self-declared turnover, with firms gradually moving into the standard tax system.
On subsidies, CME called for blanket subsidies to be replaced with targeted digital vouchers that would channel assistance directly to households.
