KUALA LUMPUR (Oct 12): A permanent wealth tax may not be a feasible option for Malaysia, says The Malaysian Institute of Certified Public Accountants (MICPA) and Deloitte Malaysia in a jointly produced report titled: “Tax Reforms: The Way Forward for the Malaysian Tax System Thought Leadership Report”.
The view is based on the observation that other countries around the world have gradually dropped wealth tax over the years, as governments realise that revenues derived from such a tax may not be significant.
Instead of a permanent wealth tax, said the report, one option that can be looked into is a one-time wealth tax to help rebuild the country. It cited the example of a one-time net wealth tax by Argentina that was recently passed in December 2020.
Wealth tax is defined as a tax on an individual’s stock of assets, and not on income, profits or transactions. Its purpose is to redistribute the fortunes of the richest in the country to the ordinary people, in order to achieve a fairer society and reduce wealth inequality.
That said, there are risks with introducing a wealth tax. The report stated that taxing the rich has always been a difficult task, given how they have the ability to move their fortunes from one tax jurisdiction to the next.
Another problem comes with the ability to track the wealth that is held abroad.
“A wealth tax could be imposed on just domestic assets, but that would create a large incentive for the wealthy to hold their assets abroad.
“So, governments would likely impose the tax on worldwide assets, yet that would create a large incentive for evasion,” said the report.
It is difficult for tax authorities to audit assets owned globally and to apply judgement on whether valuations on foreign assets are fair.
The report also said that with the wealthy having greater access to wealth planning services, it is easier for them to shield themselves from the tax authorities and thereby making wealth tax less painful compared to those with lower returns on their assets.
Notably, said the report, only three OECD countries levy wealth tax now, compared to 12 three decades ago.
Nevertheless, it added that wealth tax may not be necessary if there are comprehensive capital income tax, including capital gains tax.
“After all, policy decisions in Malaysia should be driven by what is appropriate for Malaysia. An issue identified, or a solution developed in another country is not necessarily an issue in, or a solution for Malaysia.
“We could learn from the overseas experience but any introduction of major taxes in Malaysia must be carefully considered. A more in-depth study is required before a conclusion could be reached on whether to introduce wealth tax. Any comparison with other jurisdictions would also need to look at the economic development and income structure in those jurisdictions vis-a-vis that of Malaysia,” the report said.