By Joachim Ng
This can be a page from Ripley’s Believe It Or Not: Malaysia will achieve high-income-nation status in 2020. However, 85% of the registered workforce of 15 million does not pay income tax. That’s 12.7 million workers outside the connection. Half the workforce, or 7.5 million, don’t pay a sen because they are earning RM2000 or less.
Who’s paying income tax? Mostly employees getting above RM2,500 monthly salaries, retirees doing small jobs, successful professionals, and dutiful entrepreneurs. They are just 2.27 million and the previous administration kept squeezing them for more cash. The tax-exempt are 7.5 million and the taxpayers are 2.27 million. That leaves 5.2 million workers disconnected from the loop.
The new Government should establish three key reforms:
Set an example of scrupulously honest governance that doesn’t squander taxpayers’ money in wastage, leakage, and overpriced government procurements. This will remove any excuse to avoid tax and instead give a push to the missing-in-action 5.2 million workers to join the loop as a patriotic duty.
Use artificial intelligence devices to track income earned by thousands of profitable street businesses that operate on cash-only, no-receipt basis. No paper trail, no tax. Haul up the freeloaders, just as you haul up the corrupt. Sponging is unpatriotic care-for-oneself-only.
Scrap the misleading high-income-nation goal and replace it with the challenging goal of becoming a high-median-income nation in 2023 so as to greatly widen the income tax base.
To be a high-income nation means that Malaysia will soon chalk up a high average-per-head Gross National Income — a goofy goal. If you have RM2 million and I have RM2, we are both millionaires average-per-head. But you eat Musang King durian, while I take kangkung. A true achievement is high median income. If you stretch all the incomes from lowest to highest in a line, the midpoint or middle figure is called the median income.
High-median-income status is achieved when the median salary hits RM5,000 per month plus 3 months bonus. On that salary you pay income tax of RM2,400 (reaching scaled rate of 10%) if you claim RM25,000 tax relief. Currently the median salary is only RM2,160. As mentioned a fortnight ago, 10% is a tithing prosperity number. Every worker, urban or rural, should aspire to be a taxpayer if s/he believes that the Government is honest and caring.