The Center for Market Education (CME) has proposed a major overhaul of Malaysia’s tax system, including the reintroduction of the goods and services tax (GST), lower personal and corporate income tax rates and measures to ease tax-related cash-flow pressures on small businesses.
The proposals are contained in a policy brief by CME CEO Carmelo Ferlito, which calls for a revenue-neutral restructuring of the tax system by shifting part of the tax burden from income and corporate profits towards consumption.
CME calls for broader tax base
The think tank said the proposed 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.
“The question is not only how much revenue the state collects, but through which channels and at what moment it asks taxpayers 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.”
Among the key proposals is the reintroduction of GST to replace the sales and service tax (SST), with a broad base, few exemptions, a sensible registration threshold, limited rates and faster, rules-based refunds.
CME said the proposed GST should replace part of income taxation rather than become an additional tax burden.
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.
Lower income and corporate tax rates
CME 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.
For companies, the think tank proposed gradually lowering the 24% corporate tax rate to allow businesses 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.
Measures aimed at small businesses
CME proposed abolishing monthly advance tax payments under CP204 for micro and small businesses, allowing them to retain their working capital until their actual tax liability is determined.
It 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 channel assistance directly to households.
