Connexion: Chase the 83.5% who avoid paying income tax
By Joachim Ng
The Prosperous Perak 2030 Plan driven by Menteri Besar Dato’ Seri Saarani Mohamad is targeted to bring social, economic and political prosperity to the people of Perak. To ensure its success, Dato’ Seri Saarani said, good synergy between the State and Federal Governments was needed to address any issue worrying the people.
Going into the New Year, uppermost in the minds of Perakians are the runaway prices of groceries and meals while salaries remain stagnant. News media have reported consumer complaints of a twofold rise in the prices of many items, and M40 families at the lower end are cutting back on Cuti-Cuti Malaysia holidays.
A staple remedy to help people bear the hardship of surging inflation is to maintain the food and electricity subsidies for all households. It is commendable that Prime Minister Datuk Seri Anwar Ibrahim has decided to scrap an earlier proposal to target electricity subsidies for just the B40 households. Now, only multinational and large export-oriented firms will be affected by electricity tariff hikes.
Subsidies cost an arm and a leg, of course. The money comes from taxpayers, and who are these taxpayers? They are top-income wage earners and a minority of M40 salaried workers. To deny subsidies for taxpayers as proposed earlier would mean sending a message that they too should find ways to avoid paying taxes. The Federal Government knows the real problem, and it must find the guts to solve it.
The Federal Government is short of funds as only 16.5% or 2.47 million people out of the large workforce of 15 million (2019 figures) pay income tax. The largest portion of the nation’s revenue comes from income tax at 35.7% of the total. Three-quarters of these taxpayers are salaried employees. The balance 64.3% contribution to national revenue comes from borrowings, non-tax sources, indirect tax, and other direct taxes.
As soon as an employee starts work, his personal details are sent to the Inland Revenue Board and a tax file is opened. His file will remain open long after he retires, as the taxman hopes this old guy can still draw income through part-time work and continue paying tax until he dies.
Whenever the Government needs cash, the squeeze is on the tax-compliant employees and retirees to cough up more. Nobody chases after the 83.5% of the workforce who avoid paying income tax or claim so many tax reliefs that they don’t have to pay even one ringgit. Can you believe that 83.5% of adults have no jobs or they earn too little to pay tax? If it’s true, Malaysia is the poorest country in Asia and comparable to Nigeria.
The workforce is 15.67 million (2020 figure), while the unemployment rate is 4%. But the working-age population is 23.5 million. There is a gap of 7.8 million, and unless they are lifelong PhD students, a shrewd guess would be that most of these 7.8 million people are drawing unreported incomes from the informal economy. How many classify themselves as B40s to escape tax?
You may also be aware of the huge number of foreigners who work as self-employed contractors. You yourself may have used them for plumbing, electrical, repair, and construction jobs. They don’t issue you a receipt after getting your money, as they want to avoid paying income tax.
The Federal Government must consider it a moral obligation to broaden the tax base. In ancient societies, every working adult was obligated to give a percentage of his gross earnings to society. No exemption was granted. If your income was low, you gave little. Why do low wage earners also have to give? It’s not just about money; it’s about participation in the upkeep of society. Everyone must get involved and contribute.
It’s easy to cast the tax net wider. As soon as any person whether citizen or foreigner reaches the age of 18, assign him a Taxpayer Identification Number. Six years later, if he still hasn’t started paying tax, call him for an interview and ask him whether he is a lifelong PhD student. If not, then why isn’t he working?
If he says he can’t find a job, only a fool would believe him. Foreign workers are in great demand because there are far more jobs than workers available. If he is choosy about jobs, give him a choice of three occupations, for example, plantation, hotel, and restaurant. If he prefers starving to death instead of harvesting palm oil, folding blankets, or washing dishes, sentence him to full time community service to knock sense into him.
More likely, such a person is hiding his income source. Charge him in court, as tax avoidance erodes public morality and the upkeep of society. What about the generous tax reliefs that exempt younger members of the workforce from tax payment? Let’s return to the principle that every working adult — single or married, with two or ten school going children — must help upkeep society by giving a portion of his earnings.
The income tax law must be revised to stipulate that any person earning RM1,500 minimum wage must pay a minimum RM180 tax. This is 1% of his annual salary. It’s just 50 sen a day. If the non-taxpaying 13 million workers were to pay just RM180 tax each, that’s a hefty RM2.3 billion additional collection every year.
The super-rich folks who do not have to work shouldn’t be spared, either. It has long been suggested by tax experts that any person with RM100 million worth of assets should pay half to one percent of income tax on their asset value every year. Instead of fighting against taxation, the super-rich must learn to think of it as a tithe to keep the nation developing well and that is to their advantage too.
Other than the disabled, there is only one group of workers that the Inland Revenue Board should be soft on: the senior folks. As EPF savings are low and prices of daily necessities are soaring, oldies must keep earning money after retirement to pay for medical expenses, medical insurance, and health foods. The harsh reality is that M40 private sector retirees must work till death to avoid turning into street beggars.
As there is no senior-age tax rebate, oldies get few reliefs and have to pay income tax to the end of their days. The Government is remiss in taxing private sector retirees who continue slogging to avoid depending on welfare. These retirees should be granted exemption from paying income tax if their income is below RM100,000 a year.
Persons on the last leg of their journey should be spared tax afflictions. Many countries, in addition to waiving the requirement to pay income tax, give the oldie ex-taxpayers a monthly allowance regardless of whether they are poor or rich. It’s a gift that is not conditional upon their economic status, as it is granted in recognition of their decades of tax contributions and to help them prepare for the end.
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Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Ipoh Echo
