LETTER | The launch of the Shared Prosperity Vision 2030 policy signals a new era of the development in Malaysia. This new development agenda has a strong emphasis on the concept of sharing prosperity which will be done via reducing inequality and redistributing wealth.
Thus, this new vision entails three main objectives - to restructure the economy into a more progressive, knowledge-based and high-valued community; to address economic disparities across all income groups, ethnicities, regions and supply chains; and to build Malaysia as a united, prosperous and dignified nation in becoming an economic centre of Asia.
The strategy and approach of this vision need to be applauded as the government finally acknowledges and shifts its focus in dealing with inequality. For years, this has not been the biggest concern. However, the plans and strategies for redistributing wealth seem to be lacking in the discussion and for which many are demanding answers.
Reasons for inequality can be derived from income and wealth. At the moment, Malaysia has only witnessed an implementation of tax on income and consumption without considering a wealth and inheritance tax. Wealth taxes impose levies on an individual’s accumulated assets or financial assets. This includes vacation homes, art collections, shares, bonds and fixed deposits. On the other hand, inheritance tax or estate duty is imposed on property inherited from a deceased.
Dr Mahathir Mohamad has recently made a statement that new taxes shall be introduced. “We may also have to introduce new taxes, but it must not be a burden to the people.” This has caused an outrage among society as the introduction of taxes is considered to be burdensome. Although this perception might not be completely true.
A wealth and inheritance tax should have a high threshold value, for example, assets worth more than RM4 million. This would ensure that this tax would only affect those who are extremely rich and the lower and middle-income earners would not be affected.
For context, Malaysia used to have inheritance tax/estate duty. Prior to the abolition of this tax in 1991, estate duty was applicable only if the net worth of the estate exceeded RM2 million. And the rates imposed were 5 percent on estates worth RM2 million, and 10 percent on everything above RM4 million.
Inheritance tax is usually found in developed nations. Japan has the highest rate at 55%, South Korea at 50%, France at 45%, and the UK and the US at 40%.
In addition to inheritance tax, there has been a heated debate in the US among Democrats such as Elizabeth Warren and Bernie Sanders who have proposed a model of wealth tax to combat the inequality in the US economy. The reason for this is to redistribute the fortunes of the richest Americans via transfer to ordinary people through this model tax.
For instance, Warren proposed that wealth tax is implemented for households worth over US$50 million, with a 2% tax applied on net worth above US$50 million and a 3% tax applied on net worth above US$1 billion. On the other hand, Sander’s proposed a 1% tax on net worth from US$32 million to US$50 million for married couples. Additionally, an 8% tax should be implemented for individuals that have a net worth of over $10 billion.
Essentially, a wealth and inheritance tax is not something new to be put into consideration. Even in Islam, zakat is necessitated on wealth. Using the same model, the government should then consider the implementation of a wealth and inheritance tax as a tool to achieve a fairer society by reducing the wealth gap between the rich and the poor and simultaneously aligning with the principles of the Shared Prosperity Vision 2030.
The writers are attached to the Institute for Research & Development of Policy (IRDP).
The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.