With RM300b at stake, tax experts caution Putrajaya to rein in shadow economy soon

Azril Annuar
Rays of light stream through open windows at a wholesale wet market in Chow Kit as people go about their morning routine in Kuala Lumpur February 28, 2018. — Picture by Firdaus Latif

KUALA LUMPUR, Jan 20 — The government needs to crack down on the shadow economy sooner rather than later, two tax experts said.

While the shadow economy is largely estimated to be worth RM300 billion comprising unregistered businesses, smuggling illegal or fake goods and money laundering, Berita Harian reported today that it can take other forms, such as freelance tuition teachers who rake in more money than formal teachers as the former is not monitored or registered with the Companies Commission and is not paying taxes.

The Malay daily cited tax expert Veerinderjeet Singh saying the government must resolve the shadow economy problem as soon as possible or face bigger obstacles down the road.

“If it is not handled immediately, it will be more difficult to manage in the long run. So, the government needs to address this as soon as possible,” Veerinderjeet was quoted as saying.

He acknowledged that other countries are facing the same problem and it could not be fully eliminated, but said Malaysia’s shadow economy issue can still be resolved provided that there is cooperation across the board.

He explained that there are multiple methods to address shadow economy activities especially if the government uses modern technology such as big data, analysis, the Internet of Things, stronger enforcement and educating the public on the importance of taxation.

He also urged the government to be transparent about how it spends the taxpayers’ money that it has collected while creating more channels to make it easier for taxpayers to pay their dues.

“There must be more channels to declare taxes and it must also be user friendly, easy to use and not a burden. Another solution is that there must be a cashless transaction system that allows the government to have a copy of the transaction records,” he was quoted as saying.

Veerinderjeet estimated that the global shadow economy is roughly 30 per cent of the world’s gross domestic product (GDP) and in Malaysia the shadow economy stands at around 21 per cent.

On January 13, Finance Minister Lim Guan Eng said that Malaysia’s shadow economy is higher than average for a developing nation.

Socio-economy Research Centre executive director Lee Heng Guie pointed out that the shadow economy will create losses for the country, Berita Harian reported in the same article.

“There must be a strong commitment from all parties to address the shadow economy. Currently, we stand at 21 per cent of our GDP, which is higher than the normal average of 12 per cent,” Lee was quoted as saying.

He lauded the introduction of the Tax Identification Number for 18-year-olds and above who are earning as a good move to detect and curb the underground economy.

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