PETALING JAYA,Aug 19: An economist has cautioned the government against introducing taxes that might undo its effort to revive the economy.

Commenting on Umno deputy president Mohamad Hasan’s recent call for the introduction of wealth and inheritance taxes, Centre for Market Education Malaysia CEO Carmelo Ferlito said: “We should avoid those taxes, especially now.”

Such taxes could discourage economic activity, he told FMT.

Mohamad proposed the new taxes as a means of offsetting a drop in tax revenue if the government were to take up his other suggestion of lowering the corporate tax to attract investors.

Speaking last Monday, Mohamad said the wealth and inheritance taxes could, in addition, help to narrow the wealth gap in the country.

Ferlito supported the call for a lowering of the corporate tax, saying tax reductions were a natural incentive to economic activity.

The standard rate of Malaysia’s corporate tax is 24%. In Singapore it is 17% and in Thailand 20%.

But Ferlito said tax reform should not be the only element to consider in a strategy for economic revival. He called for a holistic approach in which the general business environment is taken account of.

Another economist, Barjoyai Bardai of Universiti Tun Abdul Razak, said wealth and inheritance taxes did not have relevance in Malaysia because the wealth gap in the country was not severe enough.

He called instead for economic reform measures that give prime consideration to the majority population.

“The government should target the B40 group as it is the biggest group that could help the economy recover,” he said. “The proposal on tax reform will not benefit them at all.”

Ferlito also said the impact of even ambitious incentives to attract foreign investments would be limited if the government did not give enough attention to the importance of reopening borders.

“It is time to think of a coordinated and gradual opening of borders at the Asean level,” he said. “This will have a tremendous impact on confidence, which is very much needed now.

“In order to understand the importance of a coordinated action, a simple example will help. Think about the debate on Bali’s opening of its doors to foreign visitors. The measure will be ineffective if visitors are allowed to enter Bali but are not permitted to leave their respective countries.

“It is clear that isolated and uncoordinated initiatives are unlikely to produce the desired effects.”

However, Barjoyai urged the government to shelve its plan to reopen Malaysian borders this year.

“We’re risking exposing the population to a new wave of infections,” he said. “When we decided to close the borders, it was a conscious decision because we wanted to save lives rather than the economy.”

He said Thailand had shown a good example in deciding to close its borders until next year despite its reliance on tourism as a major source of income.


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