How fair tax system supports human rights

Malaysian civil society is increasingly calling for transparent and accountable tax policies from govt

BUDGET 2025 has taken steps to strengthening the resilience of our economy and stimulate further economic growth with a substantial allocation of RM421 billion.

Progressive and well-implemented tax and fiscal policies can be a means to further improve the human rights environment in Malaysia. Today, human rights include but are not limited to life, liberty and security, the right to education and a healthy standard of living.

The Malaysian Human Rights Commission (Suhakam) has commented that while Budget 2025 reflects positive steps in Malaysia’s fiscal policy and development, it falls short in addressing critical human rights concerns, particularly in areas affecting marginalised and vulnerable groups.

Tax revenue is the primary source of income used by governments to bankroll the provision of essential public goods and services such as schools, hospitals and physical infrastructure, as well as the police and judicial systems that are indispensable in upholding human rights.

Benefits Of Taxation

Amnesty International highlighted in a report titled “What’s Tax Got to Do with It: A Resource Guide on Tax and Human Rights” that there are four R’s when it comes to the benefits of taxation: Resource mobilisation, regulation and repricing, redistribution and representation.

Taxes are a tool used by governments to pay for the guaranteeing and promotion of human rights. Fair tax systems effectively mobilise resources to fund public services that uphold human rights, such as but not limited to health and education.

Tax policies are used as a form of regulation or repricing to influence a wide variety of behaviours that result in perceived negative results. Theoretically, taxes on tobacco products make smoking more expensive, leading to fewer people smoking and eventually straining the public health system with smoking-related comorbidities. Thus, the right to health is also guaranteed and promoted.

Additionally, taxes are also utilised to address social inequalities through redistribution. Regressive tax policies can exacerbate and worsen existing income inequality within a country. Conversely, progressive taxation can be used to fund policies and programmes to help reduce income inequality and ensure that everyone in the country has the same access to the human rights that they are entitled to.

Taxes are closely linked to human rights through accountability. The way a state uses its resources, legitimacy and institutional strength through taxes can strengthen or weaken its accountability to the public, forming a social contract. There is growing demand from the Malaysian civil society for the government to practice transparent and accountable tax policies. This is to ensure that these measures serve the public interest, uphold human rights and guarantee equal access to such rights.

Another benefit of tax that has appeared in recent discourses has been “reparations”. Reparations through a tax policy lens include providing monetary payments or other forms of assistance to those who have been wronged, often historically. These discourses have often been centred around ethnic and social groups that have been displaced and negatively impacted by orthodox economic development.

In Malaysia, indigenous communities seeking reparations following issues such as eviction and involuntary resettlement. Suhakam has pointed out that while Budget 2025 mentions infrastructure projects for rural and indigenous communities, it fails to address the protection of land rights for the indigenous peoples. It added that the participation of indigenous peoples in decision-making on development projects remains limited, often resulting in displacement and loss of traditional land rights.

Fair Tax Systems

Fair tax systems generate the maximum amount of resources required to fund human rights. For a tax system to be deemed fair, it has to have the principles of fairness or equity, adequacy or sufficiency, simplicity, transparency and administrative ease.

Fair and equitable tax systems ensure that everyone should pay their fair share of taxes. This means that people pay similar amounts of tax for similar financial situations, or they pay at least the same proportion of income in taxes as those who are less well-off. Those below the income threshold for taxation do not pay taxes. If the system is fair, it will collect the maximum amount of funds needed to promote equity.

A fair tax system generates enough income to, at the bare minimum, fund the essential needs of society and or the demand for public services. The adequacy of taxes is measured in the context of other income sources and compared vis-à-vis other countries in the same income bracket. From a taxpayer’s perspective, a fair tax system makes it easy to file their taxes. The greater the level of complexity, the more taxpayers and tax-collecting agencies pay in the form of compliance costs. A simple tax filing system also reduces the likelihood of tax avoidance and evasion.

Transparent tax systems make it easy for taxpayers to easily find information about the tax system, including who is obligated to pay tax, exemptions and how tax revenue is being used.

A tax system with administrative ease translates into a tax system that is neither too complicated nor costly for tax administrators. There are clear, well-known and simple rules: The state can tell if taxes are paid on time and correctly and that audits are conducted fairly and efficiently. Importantly, tax collection costs should be small vis-à-vis the amount of tax collected.

Challenges With Human Rights and Tax

For many, corporate tax avoidance is a big roadblock to ensuring fair taxation and guaranteeing and promoting human rights. Corporate tax avoidance can come in the form of transfer pricing and profit shifting to tax havens. Transfer pricing is the pricing for goods and services between companies under common control to reduce their tax liabilities. Amnesty International estimates that global revenue losses through transfer pricing are estimated to sit between 4% and 10% of total corporate income tax revenue, translating into a whopping US$100 billion to US$240 billion (RM1.07 trillion). Participation and execution of international tax co-operation agreements are paramount. Improved international tax co-operation helps to tackle tax evasion while also advocating for policies that emphasise human rights in tax matters. Tax evasion is an undermining factor in the ability of governments to fulfil their human rights obligations. This is because the maximum amount of resources to fund measures that support and protect human rights is not achieved.

That said, the government is responsible for wisely spending resources and tax revenues to ensure that the intended beneficiaries receive the benefits. Budget 2025 is gearing in that direction by targeting a reduction in the nation’s fiscal deficit from 4.3% of GDP in 2024 to 3.8% in 2025.

For Malaysia to continue to develop, progress and promulgate human rights, it must continue to take steps to ensure that its tax system becomes fairer and more equitable.

S Saravana Kumar
Kuala Lumpur