GEORGE TOWN: Malaysia’s shadow economy - which comprises illicit activities such as black market transactions and undeclared work - is worth about RM300 billion (US$73.8 billion) or 21 per cent of the country's gross domestic product (GDP), said Finance Minister Lim Guan Eng on Monday (Jan 13).
"If not handled well, it will not only result in a big loss of revenue to the country but also reflect the inefficiency of the government agencies and implementing machinery in handling issues related to the shadow economy,” he said.
The tax revenue lost because of the underground economy could threaten the stability of the nation’s tax ecosystem, particularly in fair taxation and voluntary tax compliance, said Mr Lim.
Mr Lim urged the Inland Revenue Board of Malaysia to constantly enhance its collaborative network and information sharing with other government agencies, so as to curtail the leakage from the underground economy.
"I am ready to give support and assistance should there be a problem in getting the necessary cooperation from other government agencies in the administration machinery in the effort to achieve the goal,” he said.
Lim, who is also member of parliament for Bagan, said the government has set the direct tax collection target for 2020 at RM154.7 billion, up from RM147 billion in 2019.
He said that although Malaysia’s economy continues to grow every year, the tax collection as a percentage of GDP has not been keeping pace.
"For instance, based on World Bank figures for 2017, although the size of Malaysia’s economy was RM1.4 trillion, the tax-to-GDP ratio was only 13.1 per cent.
"This puts Malaysia below comparable countries such as Vietnam, Chile, Poland and South Korea, for which the ratio was 19 per cent, 17.4 per cent, 16.8 per cent and 15.4 per cent respectively," he said.
He attributed Malaysia’s relatively poor performance to aggressive incentive policies, lowering of tax rates each year, revenue leakage due to diversion, tax evasion, and a still-low tax compliance rate.
To overcome this problem, he said, the government will constantly formulate fiscal policies that can safeguard the interests of all quarters, including fine-tuning policies related to investment incentives.