How to Attain a Balanced Tax Reform in Malaysia

Many different factors go into attaining a reliable and efficient balance in tax reforms in Malaysia. For example, professional accounting firms and tax incentives in Malaysia are also helping the authorities to bring more balance in tax rules and regulations.


The best way to achieve this goal is to make such strategies that can support the government revenues without compromising the progress of the private sector.


The Center for Market Education (CME) suggests the following top five techniques to achieve balanced tax reform in Malaysia:

1. Reduce Income Tax

According to experts and business analysts, private investments are the most important engine of long-term growth. Hence, it is being proposed that the government encourage more investment by providing an income tax reduction.

However, this kind of change has to be implemented on both direct and indirect taxes. It is the responsibility of the authorities to ensure compliance with the changing standards.

2. Introduce GST

The income tax cut should be counterbalanced by a consumption tax. The justification for a consumption tax is mostly based on the prospect of encouraging household savings in a country where household debt is extremely high.


The return of the GST may provide an opportunity to explore the prospect of more significant potential to reduce. GST encourages local governments to take a greater role in tax collection so that they can have more direct access to funds that can be used to support the economy.

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3. Special Schemes for Small Business

It is extremely important to support startups and small businesses. Professional accounting services in Malaysia allow such companies to qualify for all of the available tax incentives in Malaysia so that micro businesses also have the opportunity to flourish and contribute towards the betterment of the country.

4. Changes in Tax Regulations due to the COVID-19 Pandemic

There has been a significant increase in the budget deficit as a result of the resources needed to deal with the COVID-19 pandemic.


Now, economists are suggesting a special purpose tax (SPT) of 5% on taxable earnings of businesses over a certain level in Malaysia. For the assessment years 2021 and 2022, such a tax should be applied for two years and then abolished to support the companies.


It is important for the authorities to explicitly specify the time limit to ensure the businesses are not discouraged by such new taxes. It will give rise to a new social agreement between the government and the people.


\As a result, people can expect better services and products to fight the pandemic, and companies can keep working without any future lockdowns.

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5. Progressive Capital Gain Tax

Experts are also proposing a progressive capital gains tax because the public sector has a great responsibility to contribute towards the healthy growth of the economy. This kind of tax will be useful in facilitating the economic system to grow and have sustainable growth in the long term.


The idea of such a corridor pre-supposes that the political sphere can take the appropriate measures that can effectively and opportunely tame and dominate those forces in a capitalistic system which continuously tries to go through the roof and risks exiting the corridor towards an excessive growth path.


At the same time, authorities must ensure that the economy does not stray from the path and is not forced to deal with economic instability. This tax might act as a self-correcting mechanism for investing behaviour. The proposed tax will result in a situation in which the smaller the return, the lower the tax rate.


It is common knowledge that low-return investments are associated with low-risk. Thus, such a tax would encourage cautious behaviour among the investors.


Overall, companies can expect to see a move away from highly speculative ventures that promise a high rate of return since some investors will lose interest as a result of the higher tax burden.


If the economy rises over the corridor, fewer individuals will join the bandwagon, and the hazardous bubble will grow at a slower rate. This would allow the system to slow down and adapt to the changing economic conditions.

On a Final Note

These strategies will definitely be useful in bringing a much-needed balanced tax reform in Malaysia. Overall, it is a very complex issue as it involves various kinds of financial constraints, and the authorities must consider the situation of all kinds of businesses before making any drastic changes.


The good thing is that professional accounting services in Malaysia have years of experience in dealing with critical business functions, so they can provide their useful advice and services to the authorities and specific companies as well.