Effective tax policy is crucial for sustainable growth – says the Deputy Minister of Finance

PUTRAJAYA (June 11): It is crucial to highlight the role of effective tax policies in supporting continued growth and stability in the light of economic progress, said Deputy Finance Minister Lim Hui Ying.

She said tax revenues are essential to support public services, infrastructure development and social programs that are fundamental to the nation’s well-being.

“Developing an efficient and fair tax system is a particular challenge for countries like Malaysia that are integrating into the global economy.

“An ideal tax system should generate basic revenues without excessive government borrowing or discouraging economic activity,” she said in her keynote speech at the fourth Malaysian Tax Policy Forum organized by the International Strategy Institute (ISI) today.

Lim said developing effective tax systems is not easy. Informal employment in agriculture or in small and informal enterprises, because their variable earnings and cash transactions make the calculation of income taxes difficult, and the reliability of data, because the informal structure of many economies and financial constraints make it difficult to generate reliable statistics.

In her opinion, the importance of a well-designed and effectively managed tax system cannot be overestimated.

“As our economy continues to develop, it will be essential for sustainable growth and social stability to ensure that our tax policy is robust and fair,” she said.

Looking ahead, Lim said Malaysia’s economic growth would be underpinned by stable domestic spending and improving external demand.

“The key driver will be investment activity, driven by progress on long-term projects in both the private and public sectors.

“Implementation of strategic initiatives envisaged in national plans, combined with greater implementation of approved investments, will provide additional growth impetus,” she said.

Lim said Malaysia’s economy grew at an impressive 4.2% in the first quarter of 2024, up from 2.9% in the fourth quarter of 2023, helped by stronger private spending and positive improvement in exports.

She said that in today’s rapidly evolving digital landscape, the transformation of economies is happening at a breathtaking pace, changing every aspect of society, including the handling of taxes.

Lim said tax administration must adapt to these changes as a core function of government, and the use of digital technologies is no longer a luxury but a key need to streamline operations.

“When implemented effectively, digital government and digital tax administration can drive sustainable development and growth, supporting greater trust and well-being of citizens. This is particularly important to securing our revenue base in an ever-changing world,” she said.

Meanwhile, ISI Honorary Advisor Datuk Seri Dr Mohd Nizom Sairi said one of the revolutionary changes in the field of financial systems was the advent of electronic invoicing (e-invoicing) outlined by the Malaysian Inland Revenue Authority and it was a strategic move to support the development of the digital economy.

“The introduction of the e-invoicing system in Malaysia is a step towards achieving greater transparency and tax efficiency,” he said.

Mohd Nizom said another major change in the country’s tax landscape is the change in the digital services tax rate.

From March 1 this year the tax rate on services provided by persons registered abroad will increase from 6% to 8%.

Mohd Nizom said this alignment signifies the country’s efforts to keep pace with the growing digital economy.

“As we navigate the opportunities and challenges of a rapidly changing global landscape, the need for a robust and adaptive tax policy framework has never been more pressing.

“We must ensure that our tax system is fair, efficient and promotes economic competitiveness, while promoting social equality and environmental sustainability,” he said.

Mohd Nizom added that tax transparency is an essential element of the country’s efforts to strengthen global tax cooperation, which aims to end banking secrecy and tax evasion, and support a more transparent and fair tax system.