New taxes could lead to capital outflow, says finance minister

Decision to not introduce new taxes, or raise existing ones on the rich are advised by BNM and SC as it might bring ‘shock to the system’, says Lim


The Tax Reform Committee was advised against introducing new levies such as the capital gains tax on shares, or other new forms of taxes for the wealthy to avoid capital outflows, the Dewan Rakyat was told yesterday.

Finance Minister Lim Guan Eng said prior to the tabling of Budget 2019, the government had discussed with Bank Negara Malaysia (BNM) and the Securities Commission Malaysia (SC) officials on matters regarding the introduction of new taxes.

“Our decision to not introduce new taxes, or increase existing ones on the rich, came after we were advised against doing so by BNM and SC as it might bring ‘shock to the system’,” he said.

Lim was responding to a supplementary question from Pasir Gudang MP Hassan Abdul Karim on why the previous and current administration seemed unwilling to introduce new taxes on the “super-rich” despite the ever- increasing wealth disparity between the wealthy and the poor.

“There may be negative repercussions on the country’s capital and financial markets should we introduce new taxes like the capital gains tax on shares, wealth tax, inheritance tax and higher corporate tax.

“That move, in the current challenging fiscal environment, would be a shock on the financial market that may lead to massive capital flight,” he added.

Lim said both BNM and the SC were worried that the returns the government would receive may not make up the impact it will have on the capital market and the country’s financial standing.

“This is why the regulatory bodies were against the idea of a capital gains tax or even an inheritance tax, as we would incur more losses from the market,” he explained.

Lim also said neighbouring countries in the region have no existing taxes imposed on those in the higher income category.

“We must not get too carried away until it impacts our financial market badly, for sudden taxation would jeopardise the country’s fiscal recovery.

“This is why the current administration considers a period of three years to tackle overall deficit, and not immediately,” he added.

Meanwhile, Lim said the rate of a 40 sen tax per litre on sweetened beverages, to be imposed on April 1 next year, would allow the government to generate extra income and not burden the rakyat.

He added that the introduction of such a tax is not to stop Malaysians from consuming sugary drinks, but merely to discourage them.

“The government knows that taxing is the only step we can take to reduce the consumption of sweetened drinks, (this) means we are allowing the public to consume, but moderately.

“In the meantime, it allows us to generate additional revenue,” he said when replying to a question from Beluran MP Datuk Seri Dr Ronald Kiandee on the type of new taxes that will be introduced to cover the deficits in the government’s revenue due to the abolishment of the Goods and Services Tax.

According to Lim, other forms of taxes that would make up the government’s coffers include the service tax imposed on overseas and local providers of services such as architecture, graphic design, information technology and engineering design starting from Jan 1, 2019.

For online services imported by consumers, Lim said the government would impose and remit a service tax on services such as software, music, video or any digital advertising beginning Jan 1, 2020.

In addition, the increase in real property gains tax for Malaysians and foreigners, as well as the increase in stamp duty rates for property transfers worth more than RM1 million, were also among other efforts to improve government’s revenue, he added.