Should Malaysia consider capital gains or inheritance tax for revenue?

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Malaysia Has Significant Scope to Introduce Capital Gains or Inheritance Tax for Revenue Generation and Redistribution

Malaysia possesses considerable potential to broaden its revenue base by implementing a comprehensive capital gains tax (CGT) or an inheritance tax, according to the World Bank. Such measures are viewed not only as a means to increase government revenue but also as an effective mechanism for wealth redistribution. This perspective emerges amidst significant pressure on public finances due to the Covid-19 crisis and the ongoing need to support economic recovery.
Potential for Enhanced Revenue and Redistribution

The World Bank's analysis suggests that a well-structured CGT or inheritance tax could substantially expand Malaysia's revenue streams. This is particularly relevant given the fiscal strain experienced during the pandemic, which necessitated substantial government spending to protect livelihoods and stimulate the economy. The report highlights that countries globally are grappling with the financial repercussions of the Covid-19 crisis, and Malaysia is no exception in facing persistent demands on public finances for recovery and commitment fulfillment.
Current Tax Landscape and Political Hesitation

Currently, Malaysia generally does not tax capital gains, with exceptions primarily for disposals of real property and shares in real property companies, which fall under the Real Property Gains Tax (RPGT). Political leaders have historically shown reluctance to tax profits from shares or dividends. Furthermore, past administrations abolished estate duty in 1991, indicating a long-standing hesitation to implement taxes on wealth transfers or inheritance. This contrasts with the World Bank's observation that many countries have successfully utilized these tax types for both revenue and redistribution.
Growing Public Interest and Wealth Inequality Concerns

Public discourse surrounding the potential introduction of CGT or inheritance tax has intensified since the onset of the Covid-19 crisis. This increased interest appears partly fueled by criticisms regarding the adequacy of the government's pandemic response and aid distribution. Some economists argue that the absence of these taxes allows affluent households to accumulate wealth without contributing to the tax base, thereby exacerbating wealth inequality. The World Bank points out that wealthier individuals disproportionately benefit from capital gains and investments, suggesting that a tax system lacking these components places a heavier burden on labor income and lower-income groups.
International Trends and Economic Rationale

Globally, an increasing number of nations are adopting taxes on stock gains or inheritance wealth, demonstrating their utility as both revenue sources and redistributive tools. The World Bank's economists have noted that individuals earning income from labor should not be taxed differently from those realizing similar gains from asset sales. This equity argument underscores the rationale for a more balanced tax mix that captures income derived from capital and wealth, thereby potentially reducing the disproportionate tax burden on wages and the less affluent segments of the population.

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Should Malaysia consider capital gains or inheritance tax for revenue?

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