How Malaysia Can Break the Middle-Income Trap with Better Taxes

Malaysia has one of the lowest tax-to-GDP ratios in Southeast Asia, and it's holding back the country's economy. Here's why.

--Note--
This video is based on publicly available data and analysis. It represents the author’s perspective and should not be taken as professional or financial advice.

Brought to you by the Behind Asian Team.

[BehindAsia]

Do you think Malaysia has a tax problem?

[jemakhan]

Reduce tax incentives for foreign companies. Reintroduce GST. Remove subsidies on petroleum. Increase pay as only 2 million out of a 15 million workforce pay income tax. Balance the budget first before going on any spending spree which will also likely reduce corruption .

[saidali]

It's NOT THAT PEOPLE ARE POORLY TAX but there's a lot of scums running away and lying about declaring INCOME TAX TO LHDN @ IRS OF MALAYSIA .

[toi]

Even wage is not following the inflation rate still stuck 10 years behind.

[charlieyang]

If you are Rosmah, you don't have to pay any Tax at all😅😊

[safaproo]

do you know? in Indonesia, the VAT will increase until 12%. but the quality of infrastructures are so bad. raise taxes in the bad economy of the world situation are insane

[faredhassan]

As you rightly pointed out, Malaysia tax structure is similar to Spore. But how come Spore is so rich? The answer is in the structure of the economy. Imagine the size of Malaysia GDP is smaller than Spore despite having 460x land size! Same percentage of tax to GDP to my mind is not the issue. The issue is Malaysia must have higher component of high value adding economic activities. Tax income will follow

[ALong-foso]

Very nice analysis. A lot of food for thought. I always argued for years it was foolish to remove the GST because it was politically convenient

[farhanhatta]

All countries in the world uses GST for better tax collection and transparency. Pray for madani govt to adopt this taxation methodology

[tlwvwuh]

Depending on high taxes collection for national expenditures only solving short terms problems before population shrink gradually in future.

[achekholbeckal]

The Goods and Services Tax (GST) represents the optimal solution. The current government’s assistance from a foreign entity overthrew the previous administration, which was reluctant to elevate Malaysia’s economic status beyond that of its neighboring country, the Asian Lapdog, akin to the fate of Japan. As the adage goes, “To be an enemy is perilous, but to be a friend is fatal.”

[bayestraat]

Govt spending dilutes the tax rev to GDP ratio. This is evident by how the country's infrastructure has improved to unrecognisable levels as it was just 10 years ago. That ratio was considerably high because as you've said yourself, Malaysia used to be a resource-based economy, while improvements in infrastructure wasn't really a thing in the 80's. Just my two cents

[weezerie]

For foreigners, malaysia is tax heaven!

[Abcd-qv]

Increase taxes on the people will only increase the burdens on them. Inflation will rise higher and higher, even basic necessities becoming more and more expensive. People may cut back on spending resulting in slowdown in consumption and the economy as the whole. Shops
and businesses will close down due to slowdown in businesses. And as a result less jobs and high unemployment rate. Crime rate may go up.
Already 2 million people migrated out to other countries, more will follow if taxes become a heavy burden on the people.
So think twice before imposing more taxes on the people. Do not blindly pursue high income status that may cause more harms to the country.

[muhdajmel]

The problem with taxation in Malaysia is how the government spends money. Malaysia has issues with over-centralization, big government (massive welfare state and civil service), bureaucracy, and corruption. These are all interlinked to one another. Over-centralization leads to big government which then leads to red tape bureaucracy which then lead to corruption.

What the Malaysian government should do is decentralize, return most powers that the federal government has to the state governments be it taxation, religion, police, healthcare, education, environment, labor law, commerce, etc. By reducing the power of the federal government and returning them to state governments, you cut down on the bureaucracy hence minimizing possibilities of corruption.

Secondly, the Malaysian government whether past or present has their hands in unnecessary programs. Examples: public spending on sports events, arts, cultural celebrations, overlapping healthcare programs such as those by MOH and Ministry of Women, Family, and Community, government propaganda through TV shows, Majlis Selawat and Zikir, PrEP programs, subsidies etc.

Thirdly, government policies allow and welcome protectionism whether along racial lines. Although the existing government has avoided protectionist policies along racial lines, protectionism is still existent and expanded. Certain people get to import and export products, farmers aren't allowed to sell their produce directly, companies with certain connections get funds from the government.

The solutions to Malaysia's woes are decentralization and the free market.

[rudy_tjandra]

Please also discuss Indonesia on the same topic. Currently it is a very hot issue with the increse VAT rate from 11 % to 12%

[sv]

Taxing citizens that can't receive benefits, need to be put into consideration also .. all the hard work and someone else enjoying is not fair as well .

[terryloh]

1. No GST

2. Large foreign companies not taxed

3. Tax base too small

[georgegomezgomez]

Rosmah need not pay taxes as she is above the law. Get her to pay and go after all the politicians, government servants who are corrupt, and the businesses who are not paying tax. Bring back the GST and we will have a good system where everyone pays taxes on cigaretts, alcohol and vaping .

[Knick-Knack]

no one willing to accept the implementation of GST simply bcos few reasons - LOW Wage, increase of price of goods once its implemented, corruption by the then government, its poorly implemented. Malaysia income are only benefitting certain areas and not other parts of Malaysia.