KUALA LUMPUR: Malaysia collects just 12 per cent of its gross domestic product (GDP) in taxes, barely a third of the average in advanced economies, according to the Centre for Market Education (CME).
In its latest report, Indirect Taxation and Innovation: An Asean Framework, CME said Malaysia’s low tax-to-GDP ratio places it alongside Singapore and Indonesia at the bottom of the regional pack, well behind Vietnam and the Philippines.
“Vietnam and the Philippines lead the region, with ratios of 19 per cent and 18.4 per cent respectively, while countries such as Malaysia, Singapore and Indonesia follow with figures around 12 per cent.
“These numbers primarily highlight the challenges associated with enforcing income tax collection in Southeast Asia,” it said in the report.
The shortfall leaves governments across Southeast Asia with far less fiscal firepower compared with Organisation for Economic Co-operation and Development (OECD) nations, where the average tax take is 34 per cent of GDP.
The report noted that the relatively low tax-to-GDP ratios help explain the growing momentum behind tax reform initiatives in several countries.
In Malaysia’s case, the reliance on indirect taxes such as value-added tax and excise duties has been growing, even as debates intensify over the potential introduction of capital gains taxes.
The report also highlighted that although Southeast Asian countries collect a smaller share of GDP in overall taxes compared to the OECD average, their reliance on indirect taxes is considerably higher, reversing the general pattern observed in more developed economies.
© New Straits Times Press (M) Bhd
