PUTRAJAYA, June 11 ― It is crucial to emphasise the role of effective tax policies in fostering ongoing growth and stability in light of economic progress, said Deputy Finance Minister Lim Hui Ying.

She said tax revenues are essential for supporting public services, infrastructure development and social programs, which are fundamental to the nation’s prosperity.

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

“An ideal tax system should generate essential revenue without excessive government borrowing or discouraging economic activity,” she said in her keynote address at the fourth Malaysia Tax Policy Forum organised by the International Strategy Institute (ISI) here today.

Lim said developing efficient tax systems is not easy involving informal employment in agriculture or small and informal businesses as their fluctuating earnings and cash transactions make it difficult to calculate income taxes and also data reliability as the informal structure of many economies and financial constraints make it challenging to generate reliable statistics.

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She said the importance of a well-designed and effectively administered tax system cannot be overstated.

“As we continue to develop our economy, ensuring that our tax policies are robust and fair will be essential for sustained growth and social stability,” she said.

Looking ahead, Lim said Malaysia’s economic growth is expected to be underpinned by resilient domestic expenditure and an improvement in external demand.

“Investment activities will be a key driver, propelled by progress in long-term projects across both private and public sectors.

“The rollout of strategic initiatives outlined in national plans, coupled with greater realisation of approved investments, will provide additional impetus for growth,” she said.

Lim said in the first quarter (4Q) of 2024, Malaysia’s economy grew at an impressive rate of 4.2 per cent, up from 2.9 per cent in 4Q 2023, driven by stronger private expenditure and a positive turnaround in exports.

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

Lim said that as a core function of government, tax administration must adapt to these shifts and embracing digital technologies is no longer a luxury but a critical need to streamline operations.

“When executed effectively, digital government and digital tax administration can drive sustainable development and growth, fostering greater citizen trust and well-being. This is especially crucial for safeguarding our revenue base in an ever-changing world,” she said.

Meanwhile, International Strategy Institute (ISI) honorary adviser Datuk Seri Dr Mohd Nizom Sairi said one of the transformative changes in the realm of financial systems was the advent of electronic invoicing (e-Invoice) outlined by the Inland Revenue Board of Malaysia (LHDN), and it was a strategic move to support the growth of the digital economy.

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

Mohd Nizom said another significant update in the country’s tax landscape is the change in the service tax rate on digital services.

Effective March 1 this year, the service tax rate on services provided by foreign registered persons (FRP) will increase from six per cent to eight per cent.

Mohd Nizom said this adjustment signifies the country’s effort to keep pace with the evolving 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 conducive to economic competitiveness while promoting social equity and environmental sustainability,” he said.

Mohd Nizom added that tax transparency is an essential component of the country’s efforts to enhance global tax cooperation which aims to put an end to bank secrecy and tax evasion, fostering a more transparent and fair tax system. ― Bernama