Critical to plug leakages as economic uncertainties loom

IN addition to stimulating the Malaysian economy, the Government must remain committed to safeguarding existing economic resources while enhancing tax collection by capping leakages, said a business and economic lecturer today.

This is given that the global and domestic economic outlook for 2022 and 2023 remains challenging and uncertain, according to Universiti Malaya Faculty of Business and Economics senior lecturer Dr Goh Lim Thye.

“Above all else, the new threats posed by the Omicron variants, escalating price of goods, high unemployment rate and ballooning government debt, could also disrupt the speed of recovery,” he told FocusM.

“Malaysia is already experiencing higher inflation, recorded at 3.3% in November 2021, a sharp rise from the long-term average of 1.6%.”

Also worrying is Malaysia’s unemployment rate at 4.4% in November 2021 which translates to about 700,000 unemployed Malaysians.

The country’s foreign direct investment (FDI) inflows also fell 55% to RM12.57 bil (US$3 bil) in 2020 from RM32.26 bil (USD7.7 bil) in 2019.

Elsewhere, Malaysia’s household debt to gross domestic product (GDP) that stood at RM1.71 tril or 89.6% is another worrying trend.

With the highly indebted households cutting their spending, it would hinder the economic recovery.

Amid these uncertainties, Goh stressed that Malaysia needs sustainable economic growth as bolster.

“Malaysia’s GDP contracted by 4.5% year-on-year in 3Q 2021 compared to a rise of 16.1% in 2Q 2021. This clearly shows that the country’s economy is vulnerable to uncertainty shocks.”

Stemming leakages

While the expansive Budget 2022 was very much focused on stimulating economic recovery and helping Malaysians impacted by the pandemic to get back on their feet again, Goh said the Government must look at ways to drive public revenue growth to fund recovery and catalyse growth.

“Capping leakages is a low hanging fruit. The illegal cigarette trade alone is causing the country to lose RM5 bil uncollected tax annually,” opined Goh.

“With sin tax representing 4% to 5% of the total government revenue, tax collection could increase if the Government focused on tackling this massive leakage seriously.”

As of Sept 2021, Malaysia recorded 2,518 cases of contraband cigarettes and liquor seizures worth RM41.43 mil with unpaid taxes of RM281.69 mil.

“The enforcement units (Royal Malaysian Customs Department) need to stepped-up enforcement action to stop smuggling activities,” asserted Goh.

“A report by Joossens et al. (2009) revealed that Italy, Spain and the UK managed to reduce illegal cigarette trade by approximately 15% to 21% by interrupting the supply chain from the manufacturers to the illegal market,” he pointed out.

“Hence, if the enforceable and international cooperative measures are in place, illegal cigarette trade can be successfully tacked.”

Goh further suggested that significant financial penalties and public educational programmes can be considered to highlight impact of the illicit tobacco trade.

Stability

Undeniably, political and policy stability is also essential to cap leakages and revenue wastage.

“That could also be the reason for the historic bipartisan deal that was signed between the Government and the Opposition Pakatan Harapan (PH) on Sept 13 last year to enhance political stability and institutional reforms,” he reckoned.

“Hence, policymakers should ensure that the execution of any drafted policies is targeted, thoughtful and without leakages,” he added. – Jan 21, 2022

This article first appeared in FocusMalaysia

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