[GOV] Planned tax reform

Day 649, 04:20 • Published in Malaysia Malaysia • by Prime Minister's Department

The current tax structure has served us long and has served us well. But contrary to others I think that it has become outdated in the meantime and doesn't fit well the realities and needs of the country which has become an union with 800+ citizens (out of which 200-400 are active more or less probably) since then. When the current tax structure was put in place in late April, early May eMalaysia had only around 200-300 user of which around 100 were active. Import taxes were for example kept low as most companies didn't have direct competition and were alone in their sectors and the possibility of imports was an important tool at keeping prices down. Also back then the country had a really underdeveloped land sector with one single q3 land company and only a handful of q2 ones.

I've been playing with the idea of increasing income taxes for oil and wood companies to around 8% for long. Manufacturing and construction companies are taxed twice because they also have VAT and also the land sector has become our strongest one in the meantime with land wages being the highest essentially continuously for months. I'd call this situation unfair. I was also thinking about increasing import taxes.

But during our talks MartyMcFly1985, who has been my main advisory on economics and monetary policy for the last 1-2 months, has come up with the idea of an even more thorough tax reform. The idea is to level the tax burden among sectors by switching to a flat 10% income tax but decreasing VAT to 1% in the meantime.

If product prices remained at their current gross price after the change (that means a net price increase) then that would mean that the manufacturing and housing salaries would increase sooner or later because of competition and compensate at least partially for the higher income tax. This would also indicate that in the current situation most of the VAT is passed on to the workers thus they in fact have a higher tax burden than land workers.

If product prices fell to their current net price after the change that would mean that the VAT is currently paid by the costumers. This would mean that while the net wages would decrease both in the manufacturing and land sectors product prices would decrease as well minimizing the decrease in purchasing power.

Of course a combination of the above two is also possible but it shows well the trends and the probable losers and winners of the changes. All in all the tax reform would have the following consequences:
- A more level and thus more fair taxation.
- Most likely lower or equal total taxes for manufacturing and construction companies selling on the local market.
- An increased taxation of companies exporting abroad most of which are successful q2, q3 or q4 land companies that have generated huge extra income and thus profit in the last few weeks because of high raw material prices.
- An increased taxation of citizens who are not buying/consuming on the local market. On the other hand the change might be neutral or positive for those buying a lot from the local market. (Depends on how prices react.)
- More realistic prices for our manufactured products and houses that might increase the competitiveness of these products on the world markets.
- Higher tax income for the state. This also would result in a faster circulation of MYR and decrease the need to print more money.

Import taxes on manufactured goods and houses should also be increased to around 30% for the protection of our markets. We can now easily sustain ourselves and have enough local competition in quite a lot of sectors and imports (or more like the possibility of imports) is mostly only needed to keep prices in check somewhat and as a safety option for market failures. With this in mind I propose the following tax table (columns are Income Tax, Import Tax and VAT):

Food 10% 30% 1 %
Gift 10% 30% 1 %
Weapon 10% 30% 1 %
Moving Tickets 10% 30% 1 %
Grain 10% 1%
Diamonds 50% 1%
Iron 10% 1%
Oil 10% 99%
Wood 10% 99%
House 10% 30% 1 %
Hospital 10% 1% 1 %
Defense System 50% 1% 1 %

Extra questions even for those who more or less like this idea:
- Should we set a somewhat lower income tax for manufacturing and construction sectors than for the better paying land sector? (This would of course be a step away from the flat income tax idea.)
- Where exactly would you like to see the flat income tax?
- Should we continue to punish (the unwanted) grain companies with an extra income tax?
- Where should we set the import taxes exactly? Should we differentiate among the manufacturing industries?

Please comment! Congress members also please discuss the plan and vote on it: HERE!

Best regards,
Nagyzee