Press statement by Kua Kia Soong, SUARAM Advisor 11 September 2020
Two issues of late – a 20 sen e-commerce tax and putting off the proposed vacancy tax on empty unsold property – have exposed the government’s pusillanimous approach to the oft lamented problem of wealth inequality in Malaysia. As usual, the government does not want to “spook the rich” and invariably falls for across-the-board measures that hit the pockets of the majority rather than the richest 1 per cent.
As we all know, the 50 richest Malaysians own a total wealth of US$80 billion. According to Credit Suisse Group AG’s 2019 global wealth report, 0.2% or 43,646 adult Malaysians were categorised in the over US$1 million (RM4.18 million) wealth bracket while the majority of the adult population (96.1% or 20.97 million people) were categorised as having wealth at or below US$100,000. This comprised 42.7% of adult Malaysians with wealth between US$10,000 and US$100,000, and 53.4% with wealth under US$10,000.
As for property ownership, the top 10 per cent of property buyers purchased more than 40 per cent of the total value of property purchases. As recent corruption cases reveal, property developers have been having a field day via their modus operandi with high-level politicians in their pockets. Their unfettered operations have led to the current scandal of nearly 50,000 unsold property units worth RM35 billion.
Fundamental fiscal reform
As Budget 2021 approaches, the increasingly serious gap in income inequality needs to be addressed through progressive taxation of high-income earners, their wealth, and their property. To accomplish this important reform, we need effectively implemented tax laws that ensure there are no tax loopholes for the super-rich. The pandemic has laid bare the fact that wealth inequality is cutting into the social fabric of society as well as hurting our long-term growth prospects. Unless we ensure the super-rich contribute their fair share to the national coffers, the future for the B40 and M40 is bleak. We certainly need fundamental fiscal reforms such as the following:
1. A high marginal tax rate on the super-rich (those earning RM5 million and above). Before we hear silly shrieks about robinhoodism or communism, let us remember that Sweden has a 70% top tax rate and consistently remains near the top of the Global Innovation Index.
2. An incremental Capital Gains Tax on property and other progressive taxes on wealth and luxury goods.
3. Estate tax on those who inherit over RM3million at progressive rates.
4. Regulate and impose a tax on all international financial transactions such as stock trades, bonds, and hedge funds.
5. A vacancy tax on unused property as soon as reasonably possible.
6. A prohibition of the ownership of more than two houses that an individual can own.
7. Require corporations to pay taxes on offshore profits as they are earned no matter where they are generated.
8. Review and monitor tax laws to ensure there are no tax loopholes for the super-rich.
9. End the ability to own or control a company anonymously since this can allow for activities like money-laundering and purchasing real estate, all without accountability. Business ownership must be made to be open and free, accessible across borders for citizens and businesses and law enforcement alike. Insurance companies and legal firms involved in these transactions must be made to verify the owners of companies and report that information.
10. Hold bankers responsible for any money-laundering activities such as we saw in the 1MDB scandal and increase penalties for banks that accept money from questionable sources. Banks and lawyers must be made to do due diligence on their customers, to file reports on transactions greater than RM10,000 and report suspicious activity and ensure senior bank executives are held personally responsible for any wrongdoing.
For crisis avoidance sake, do not spook the poor!
Such fiscal reforms are essential if the government is serious about redistributing wealth and ensuring most Malaysians have a share in the national growth. EPF has revealed that only 22 per cent of the 6.7 million Employees Provident Fund (EPF) active contributors aged 54 years have sufficient savings of RM196, 800 or more to sustain them during retirement. The other 78 per cent of the contributors aged 54 unfortunately do not have the basic amount for their retirement years. Furthermore, 65 per cent of those aged 54 have less than RM50, 000 in their savings.
In other words, the prospects for the bottom half of Malaysian society are dismal indeed and in the absence of a proper welfare system for Malaysians, those who lose their jobs or are retrenched in the recent pandemic face an even worse plight. If the government is concerned about avoiding social turbulence soon it would be advised not to spook the poor!