KUALA LUMPUR, Nov 29 — Putrajaya is missing out on opportunities to widen its tax base further, according to an Organisation for Economic Co-operation and Development (OECD) report that found tax-to-GDP, or gross domestic product, ratio to be far below that of its member countries.
In the OECD's “Revenue Statistics in Asian Countries 2016” report, it said that Japan, South Korea, the Philippines, Malaysia, Singapore and Indonesia all recorded less than the OECD average of tax income that was 34.2 per cent of GDP in 2014.
Despite what the report's title suggests, the data terminates at 2014.
Malaysia's total tax revenue for the year in which it introduced the Goods and Services Tax (GST) was 15.9 per cent of the size of its entire economy.
Interestingly for Malaysia, the implementation of the GST also coincided with a dip in the tax-to-GDP ratio, which fell from 16.3 in the year before the consumption tax was levied.
The preview of the report did not contain an explanation of the decline, but the country was hit by a significant drop in petroleum-derived income due to falling oil price; state oil firm Petronas is the biggest single contributor to federal revenue.
Taxes represent a greater share of the economy in Malaysia than Singapore, where the ratio is 13.9 per cent.
“The report, which includes Singapore for the first time, shows that the tax-to-GDP ratios in all six Asian countries are lower than the OECD average of 34.2 per cent, especially in emerging South-east Asian economies, where scope for increased tax mobilisation remains,” read the statement announcing the availability of the report.
Unfortunately for the average Malaysian, the OECD report suggested that the main area where additional revenue could be derived was from consumption taxes like the GST.
It noted that corporations in Malaysia already contributed 52.4 per cent of all tax revenue, which was magnitudes higher than the OECD average of 8.8 per cent.
“In contrast, the share of Value Added Tax (VAT) to total tax revenues in 2014 remains lower than the OECD average of 20 per cent in all countries — due to generally lower VAT rates — except for Indonesia where the share was 32 per cent,” it said.
Putrajaya continues to fend off public backlash over the unpopular GST, repeatedly saying that the consumption tax has staved off possible economic crisis in Malaysia amid falling oil price that slashed oil revenue.
It has collected over RM30 billion in GST revenue since April 2014 to October this year.
The government has announced that it does not plan increase the current six per cent rate of the GST next year.