A wealth tax or targeted fee increments for university students in Malaysia?

Malaysia’s public universities are some of the cheapest in the world, a result of a policy aimed at making tertiary education accessible to poor and middle-income households, particularly for the ethnic Bumiputera majority. — Picture by Choo Choy May
Malaysia’s public universities are some of the cheapest in the world, a result of a policy aimed at making tertiary education accessible to poor and middle-income households, particularly for the ethnic Bumiputera majority. — Picture by Choo Choy May

KUALA LUMPUR, June 7 — A recent suggestion that public universities raise tuition fees for students from wealthier families has sparked fresh calls for the government to impose a wealth tax.

Lee Hwok Aun, a senior fellow at the Institute of South-east Asian Studies in Singapore, said a new tax on the country’s top income earners would generate new revenue to raise funding for education, and is a far more efficient approach than targeted fee increments.

“Wealthier families should have paid higher taxes that contribute to public education. Malaysia should consider raising wealth taxes,” said Lee.

Malaysia’s public universities are some of the cheapest in the world, a result of a policy aimed at making tertiary education accessible to poor and middle-income households, particularly for the ethnic Bumiputera majority.

Tuition fees at these institutions are capped, so a large portion of the operation costs are covered by taxpayers’ subsidies. Critics say this system unfairly benefits students from richer households because they pay lower fees than their poorer counterparts relative to their parents’ income.

This flaw was highlighted by Perkasa president Datuk Ibrahim Ali, recently when he suggested Putrajaya make top 20 per cent income earners’ (T20) children pay higher fees to aid those from the bottom 40 per cent (B40), sparking debate about education subsidies.

But Lee said to implement a tiered fee system would be a laborious exercise.

Under a highly centralised system, university management will need to start from scratch. Students’ families will be required to declare not just income, but also savings and wealth which they have used and designated for defraying higher education expenses.

And all this information must be verified, a process Lee said could be very complicated and costly.

So while the premise that rich people should help poorer ones by paying more may appeal to the public conscience, it remains to be seen if existing university structures can cope with the new pressure.

“The idea of differential tuition fees has some merits, in principle. The underlying premise is that one should pay in proportion to one’s financial means,” he said.

“However, this is very difficult to implement with efficiency and integrity, and I cannot see our centralised higher education system coping with the demand.” 

Malaysia has among the highest number of millionaires in the world and some 40 billionaires with a total estimated worth of close to RM300 billion, about RM40 billion more than the government’s 2018 income.

Pakatan Harapan’s (PH) rise to power in May last year had kindled calls to scrutinise the sources of elite wealth, including looking into loopholes in the tax system.

Critics say the ultra-rich pay a comparatively low top income tax rate at 28 per cent, and are allowed to park most of their wealth in tax-free assets thanks to a lenient policy that Putrajaya justified as necessary to remain “competitive”.

Finance Minister Lim Guan Eng said in November last year that tax on wealth, inheritance or capital is out of the question. He claimed a government study showed returns from the proposed taxes cannot offset their negative effects on the capital market.

Student leader Liew Liang Huang, president of Umany, a group based in Universiti Malaya, agreed. He said while wealth tax can solve public universities’ funding woes, a drastic move could spark an elite backlash with damaging repercussions for the economy.

Liew instead urged Putrajaya to rectify existing intervention programmes and infrastructure like tightening the National Higher Education Fund Corp’s operations.

“It will very likely draw a backlash from the T20 class, social justice is vital but needs to be careful of possible tension too,” he suggested.

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