The Shadow Economy in Malaysia:Taxation Perspective
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The Shadow Economy in Malaysia:Taxation Perspective Mr Muhammad Azhari Tamrin 1 Date of Presentation: 12 th November 2019
Transcript of The Shadow Economy in Malaysia:Taxation Perspective
The Shadow Economy in Malaysia:Taxation Perspective
Mr Muhammad Azhari Tamrin
1Date of Presentation: 12th November 2019
Agenda
Background of Shadow Economy in Malaysia
Causes of Shadow Economy
Taxation Issues in Shadow Economy
Areas of Taxation where Shadow Economy are Prevalent
The Emergence of Digital Technology
Issues & Challenges2
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Size and development of the shadow economy of 158 countries over the period 2004 - 2015
SHADOW ECONOMY : STATISTICS
(percent of GDP)
Source: IMF Working Paper WP/18/17
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SHADOW ECONOMY : INDUSTRIES OF SHADOW ECONOMY IN MALAYSIA
Industries of
Shadow Economy
in Malaysia
01 Construction 02 Professional sector
03 Services sector 04 Distributive trade sector
0506Retail trade05 Restaurant business
Cyber Cafe07 Wholesale08
Motor vehicles businesses09
Manufacturing & service industry10
Petty traders and hawkers at night markets
11Microbusinesses12
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Shadow Economy
Legal Activities Illegal Activities
Trade in stolen goods; drug dealing and manufacturing,
prostitution, gambling; smuggling, fraud
Unreported income from self-employment. Wages, salaries, and assets from
unreported work related to legal services and good
SHADOW ECONOMY : BACKGROUND
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Formal Economy
Shadow economy
Government Revenue
No Taxes
Pay Taxes
SHADOW ECONOMY : BACKGROUND
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01 Tax Burden 02 Government spending or consumption
Social Security Contribution Weak government and bad governance03 04
05 Intensity of regulation 06 Lack of trust for the government
07 Tax Morale Crime rate08
09 Unemployment rate 10 Inflation
11 GDP per capita 12 Financial Development
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SHADOW ECONOMY : CAUSES OF SHADOW ECONOMY
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Increase in tax rate
Tax Compliance Cost
Cause further increase in the budge deficit due to a decrease in tax revenue
Creates difficulty in measuring the official economic variables
Unreliable official statistics can lead to incorrect information for policy making
Taxation Issues
/ Tax Burden
Implementation of new tax system
SHADOW ECONOMY : TAXATION ISSUES / TAX BURDEN
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Areas of Taxation in Context of
Corporate Tax
Shadow economy implies to higher tax evasionExample of tax evasion in context of corporate tax:unreported business income and rental income, under declaring of business income and using false or fictitious invoice
Tax Evasion
SHADOW ECONOMY : AREAS OF TAXATION
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Shadow Economy
2
1
3
The Emergence of
Digital Technology
Base Erosion and Profit Shifting (BEPS)
Conventional Tax ( physical presence) vs Significant Economic Presence
SHADOW ECONOMY : THE EMERGENCE OF DIGITAL TECHNOLOGY
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Issues &
Challenges
revision of transfer pricing rulesmodification of permanent establishmentcontrolled foreign corporation rules are
all relevant to address the challenges posed by a digital economy
BEPS
Distortions in resource allocation
especially in the labour market
Official GDP statistics will
provide wrong indicators for
policy decisions
01 02
03 04Firms participate in
underground activities are not
subject to labour regulations
SHADOW ECONOMY : ISSUES & CHALLENGES
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