The document summarizes key issues with Malaysia's tax system, including concerns that the public is not ready for GST implementation, low tax compliance rates, and lack of public knowledge about tax responsibilities. It recommends increasing penalties for noncompliance, controlling price increases, continuous public education on taxes, and developing understanding from a young age.

1. PUBLIC FINANCE
Article Review on
Tax System in Malaysia
Nuqayyah Binti Che Kamaludin
Nurul Husna Binti Hanafiah
Nurazwani Binti Ahmad

2. Introduction
• The tax system in Malaysia comprises of Personal and
Corporate Income Tax, Value Added Tax, Customs Duty &
Local Tax. Among the tax base for income tax are
gains/profits from business &
employment, dividends, rents, pensions & others. Under
value added tax, there are sales and services tax & the
proposed GST which not yet been implemented. Then, for
duties, it comprises of import duty, sales tax & export duty.
The purpose of custom duty is to protect domestic
industries from competitors by tax levied on import
product. Local tax is in the form of property/ assessment
tax which the rates are different from one local govt. to
another.
• There are various issues arises regarding the tax system in
Malaysia including the proposed GST, tax compliance and
also tax knowledge among the public.

3. 1. Malaysians are not ready for
implementing of Goods and Service
Tax (GST)
• What is GST?
GST is a consumption tax based on the value-
added concept. GST is imposed on goods and
services at every production and distribution
stage in the supply chain including importation
of goods and services.
Currently, Singapura, Australia, Thailand, China
and Europe had implemented GST.

4. • Impacts of GST
- There will be some burdens on people especially from
lower income group to pay that tax for goods and services.
This is because GST will be imposed based on consumption
rather than earning or salary. So, if people who earn only
RM 800 per month, are they able to survive?
- Besides, the group also will suffer because of inflation that
exist after the implementation of GST without increasing
their salary.
- It is better revenue collection for the government to spur
the nation’s development. By GST, the government can
increase the revenue of the country and can use the
revenue for some projects that may give benefits to the
people. As we know, for the current tax system, there are
many people who are not pay for taxes especially income
tax. By using GST, the end user must bear the tax.

5. Does all Malaysians able to bear the GST?
• Once GST is implemented, everyone, regardless of whether
you are unemployed, low income, a single mother, an
elderly or disabled, you will have to pay GST for practically
all purchases.
• Even though, the government will gain a lot of revenue as
they will increase the amount of tax collected from the
people, but what will be gained by the people who has to
bear the burden of paying more taxes?
• Sarawakians will be among the worst hit with the
implementation of GST as the state is the fourth poorest in
the whole Malaysia, only ahead of Sabah, Kelantan and
Terengganu. Currently there are less than 8% of the
working population in Sarawak who are paying income
taxes. The remainder of the population just do not earn
enough money to pay any taxes.

6. • Recommendation
- Before implementing GST, Malaysia should
enact new act of minimum salary, so that the
lower income group will not feel the burden of
paying GST.
- Apart from that, the government also must
control the price of basic necessities excluding
exempted basic goods.

7. 2. Tax Compliance of the Public
• The burden of tax is always being a major concern for
the individuals and companies that is liable to pay tax.
• According to Tan Sri Dr Mohd Shukor Mahfar, there are
approximately five million people in the country who
are eligible to pay taxes but only 1.7 million are active
taxpayers.
• Non-compliance with the tax laws may take a variety of
forms. For example, non-compliance occurs when
individuals and firms under-report their income, sales
or over-claim deductions, exemptions or credits
resulting in tax evasion or fail to file appropriate tax
returns or to make tax payments in accordance with
the tax law.

8. • Government should concern more on the issue of
non-tax compliance among public because when
there are less people who are pay taxes, the
revenue of the government will decrease. When
the national revenue is decreasing, the
government has less source of income to develop
the country such as providing facilities to the
public.
• As a result, the public themselves will also be
affected when government provide less
services/facilities to them yet they are
complaining to the government without realizing
that this problem actually occurred due to their
non-compliance of paying taxes.

9. Recommendation
• The government can increase the amount of
penalty to those non-compliance tax-payer.
Currently, the amount of penalty charged is only
treble of the amount of tax (Section 77(3a) of
Income Tax Act). Thus, to make people comply to
pay tax, the government can increase the penalty
of minimum quadruple of the amount of tax. By
warning the public with the high amount of
penalty, the government can ensure compliance
among public because usually public will be
reluctant and feel burdened to pay higher
amount. Thus they will comply to pay tax.

10. 3. Lack of Knowledge among Public
about Responsibility in Paying Tax
• Some of public are still lack of knowledge &
information about taxation which lead to low
awareness of their responsibility in paying the taxes.
The tax knowledge has a close relationship with
taxpayers’ ability to understand the laws and
regulations of taxation to comply with
them(Singh, 2003). Majority of the citizens realized
that tax is the major source of income for govt.
However, there are small groups of citizens who are
still not aware of this.
• The taxpayers need to have sufficient knowledge of
current tax laws and regulations in order to compute
actual income, make deductions and reliefs claims &
make accurate tax calculations and payments.

11. • Malaysian tax authorities educate taxpayers informally via
guidebook posted to taxpayers together with tax returns
every year. It is then up to the taxpayers’ to read the
booklet and complete tax returns accurately. However,
sending only a booklet to taxpayers has raised some issues
whether the booklet provide enough information to
sufficiently ‘educate’ taxpayers. Maybe some of the
taxpayers do not understand the content of the booklet.
Therefore, the taxpayers do not realized about their
responsibility & necessity to pay the tax. It also seems that
tax education, especially for individuals, is seasonal or not
continuously. Thus, all this problems lead to low knowledge
& awareness of responsibility to pay tax.

12. • For example, the public are not fully understand
the meaning of GST that are planning to be
implemented by govt. They are only able to
provide a very general meaning of GST. They
defined GST as tax with certain rate that were
being charged on goods and services that
consumer purchase. They did not mention about
GST being charged at end user and were not
aware that the Malaysia government has
proposed a GST rate of 4 percent. The public also
did not aware that the implementation of GST
will replace the current sales & services tax.

13. Recommendation
• In order to settle the issue, the govt. need to play their role
by put more effort in educating the public about tax.
• For example, the continuous tax education programmes
and effective monitoring mechanisms must be taken into
account by tax authorities to ensure taxpayers have a good
knowledge and understanding of tax matters. However, the
awareness and attitude of the taxpayer himself is more
important since the effectiveness of tax education depends
on the readiness, acceptance and honesty of taxpayers. The
education programme must educate the school children to
be aware of where government money comes from and
what it is used for, the responsibilities of a taxpayer, and
should develop their understanding of the role of taxation
in a society.

14. Conclusion
• In conclusion, the issues in tax system need to
be take into high consideration as it can affect
the revenues and income of the country.
So, the government need to balance between
the economy of the country with the needs of
the public by charging reasonable amount of
tax.