GOVT MUST SERIOUSLY LOOK INTO TAX REFORM, SAYS MIER

By Tengku Noor Shamsiah Tengku Abdullah

KUALA LUMPUR, Aug 17 (Bernama) -- The government has to seriously look into tax
reform in the country and announce it in the upcoming 2010 Budget, says a senior
economist.

"I think we need a serious tax reform in the country. We need to introduce
Goods and Services Tax (GST) or Value-Added Tax (VAT) as soon as possible," said
Prof Emeritus Dr Mohammed Ariff Abdul Kareem, Executive Director of the
Malaysian Institute of Economic Research (MIER).

Mohammed Ariff also said he believed tax collection this year would fall
short from government target.

"If tax collection is lower than the planned target and expenditure is
higher than the proposed amount, then the chances are we are going to run into a
bigger deficit than the 7.6 per cent the government is hoping for.

"The deficit will probably touch or exceed eight per cent this year but the
problem will be far worse next year because this year's tax collection will be
based on last year's collection and next year's will be based on this year,"
he told BERNAMA in an interview.

"With growing government expenditure, including development expenditure and
declining revenue, we may have a double digit ratio of debt to Gross Domestic
Product (GDP).

Mohammed Ariff said the government should announce it in the budget because
the sooner the better.

"Of course this is a wrong time to introduce GST now simply because the
economy is contracting but it is important that we plan now for the introduction
later.

"We should have a clear time-table. We don't seem to have one at this
moment," he said.

The government should aim to implement VAT by 2012 at the least when the
economic recovery hopefully be in place.

"We need a lead time to prepare. We cannot just implement it overnight. We
need at least two to three years preparation," he said.

Learning from the experience of other countries which have introduced VAT,
they took two to three years of preparations to put in place.

"This is because VAT is a very complicated and complex tax. It is collected
at different points in a long supply chain. We also have to reimburse tourists
who paid the tax when they leave the country.

"Tourism is such an important activity. We have to put in place an
impeccable machinery first," he said.

Mohammed Ariff said VAT needed serious planning.

"I think the government should start doing it now. It should think of
introducing VAT by 2012 but start the ball rolling by preparing for it.

"Don't think about it after economic recovery because we need two to three
years of preparations," he said.

On requests to reduce income tax and corporate tax, Mohammed Ariff said the
government needs to replace with something else to increase revenue.

"This is why we need GST introduced. The government has to have long-term
planning," he said, adding that MIER was really worried on tax-based revenue.

"It is very narrow now, with 41 per cent of the government revenue coming
from oil and gas. I think this is very dangerous depending on just one source so
much," he said.

Mohammed Ariff also said personal income tax, corporate tax, shares and
economic growth have been declining as the government has been adjusting
downwards the tax rates.

Currently, the government collects 25 per cent corporate tax and 27 per cent
individual income tax.

"Come next year there is an indication the government intends to cut
corporate tax and individual income tax further.

"Many people are now out from the income tax bracket. People earning less
than RM3,000 don't have to pay tax at all.

"This is why we need to think seriously about revamping or restructuring
our tax system," he added.
-- BERNAMA