Opening Ceremony Of The 51st SGATAR Annual Meeting 2022

KEYNOTE ADDRESS OPENING CEREMONY OF THE
51^ST SGATAR ANNUAL MEETING 2022

YB SENATOR TENGKU DATUK SERI UTAMA ZAFRUL BIN TENGKU ABDUL AZIZ
MINISTER OF FINANCE MALAYSIA

18^TH OCTOBER 2022 (TUESDAY) SHANGRI-LA HOTEL, KUALA LUMPUR

Yang Berbahagia Datuk Dr. Mohd Nizom bin Sairi
Chief Executive Officer
Inland Revenue Board of Malaysia and Chairman of the 51^st SGATAR Annual Meeting

Yang Berbahagia Datuk Mohd Jaafar bin Embong
Deputy Chief Executive Officer (Policy)
Inland Revenue Board of Malaysia and Secretary General of the 51^st SGATAR Annual Meeting

Honourable Commissioners

Distinguished Delegates and Observers of the 51^st SGATAR Meeting

Members of the Media Ladies and Gentlemen.

Assalamualaikum and very good morning to all.

A. OPENING REMARKS

1. It is a great pleasure to be here this morning. I’d like to thank the organiser for inviting me to officiate and deliver the keynote address at the 51^st Study Group on Asia-Pacific Tax Administration and Research (SGATAR) Annual Meeting today.
   
   
2. I would also like to express the Government of Malaysia’s gratitude to SGATAR for the honour of hosting the 51^st Annual Meeting through our tax body, the Inland Revenue Board of Malaysia, or LHDN.
   
   
3. We are honoured to host a large delegation of tax administrators from the 18 SGATAR member jurisdiction. After two (2) years of international border closures and strict travel restrictions, we finally have the honour of physically hosting this much-anticipated event here in Kuala Lumpur, Malaysia.
   
   
4. I am delighted to take this opportunity to extend a very warm welcome to all esteemed delegates and wish you a wonderful stay in Malaysia.

B. ECONOMIC GROWTH: GLOBAL AND MALAYSIA

Ladies and gentlemen,

5. As a result of the Malaysian Government's effective transition to the endemic phase, as well as the full reopening of our economy and borders, we recorded 8.9% GDP growth in the second quarter of this year, the highest in the region. We anticipate that the strong growth momentum will continue into the third quarter, with Malaysia achieving 6.5% to 7% growth in 2022.
   
   
6. However, as a result of ongoing geopolitical tensions that led to inflationary pressures, central banks all over the world have aggressively tightened their monetary policy, dampening growth prospects for 2023.
   
   
7. In line with this, the International Monetary Fund (IMF) has also revised its 2023 global economic growth projection to 2.7% in October this year, from 3.8% in January¹. Malaysia, as a small and open economy, is not immune to such developments. Reflecting this, we project our 2023 growth to normalise between 4% to 5%, in line with projections by the IMF at 4.4%, and the World Bank at 4.2%.

¹ Budget 2023 Speech

8. In response to the anticipated global challenges, the Government has presented a 2023 Budget based on the 3Rs, which are Responsive, Responsible and Reformist.
   
   
9. Being Responsive, the Government has presented a budget that maintains an expansionary fiscal policy to cushion the impact of global developments, ensuring that Malaysians and businesses continue to receive adequate support in the face of immediate challenges.
   
   
10. And at the same time, the Government is Responsible where while we support the country's economic recovery momentum, we will balance it with the need to ensure our financial sustainability and resilience, in order to protect the country from potential future crises. As a result, fiscal reforms, as well as strengthening the public healthcare system and disaster preparedness, are prioritised.
    
    
11. In terms of the third R, Reformist, the Government presented a budget that not only addresses current challenges but also invests in the long term. This in particular will involve driving a more inclusive and sustainable development agenda for the nation while supporting a transformation of our industry to be future relevant.
    
    
12. In presenting a 3R budget for 2023, 60 tax measures that are part of the budget will play a critical role.
    
    
13. In order to be responsive, the Budget included tax cuts for the middle class and SMEs, as well as additional relief for the recovering tourism sector.
    
    
14. As part of being responsible, the Government will focus on reducing revenue leakages, such as those caused by illicit cigarettes, as well as tax incentives to encourage individuals to save for retirement and education.
    
    
15. In being reformist, the Budget presented incentives to promote new growth areas such as aerospace and medical tourism. We have also introduced tax incentives for electric vehicles, green technology, and carbon capture to promote the sustainability agenda.

C. TAX FEATURES IN THE SUSTAINABILITY AND ESG AGENDA

Ladies and gentlemen,

16. Tax policies and strategies must play a role in encouraging corporations to embrace and implement ESG policies.
    
    
17. In Malaysia, we have adopted the 2030 Agenda for Sustainable Development, which includes priorities to reduce greenhouse gas emissions (GHG) by 45% of GDP by 2030². We are also committed to achieving carbon neutrality by 2050 and have urged all government-linked investment companies, as well as government-linked companies, to set similar Net-Zero targets.
    
    
18. To support this effort, the Government is working towards carbon taxation³ and studying the feasibility of a carbon pricing mechanism. We’ve also proposed extending the Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE) for eligible green activities, and we’ve expanded these to include solar and Battery Energy Storage Systems⁴.
    
    
19. I believe that advanced nations which are ahead in these areas must continue to share their experiences, particularly with less developed economies and developing countries.

² https://rmke12.epu.gov.my/storage/mediastatementandspeech/2021092820_official_translation_speech_of_yab_prime_minister_tabling_of_the_twelfth_malaysia_plan_2021_2025.pdf
³ Budget 2023 Speech
⁴ Budget 2023 Speech

20. The Government is committed to sustainability in the broadest sense beyond environment and in line with the UN’s Sustainable Development Goals (SDG) 2030. Aligned to SDG1, the Government targets to eliminate hardcore poverty and towards this in Budget 2023, we propose to set aside RM1 billion focused on helping the very poor households to improve their earnings. Another key focus area is SDG⁵ on Gender Equality. Malaysia has progressed well in education where currently for enrolment into universities, women outnumber men. However, in the labour force, female labour force participation remains relatively low at 55.7% compared to male labour force participation of 82.6% mainly due to women leaving the workforce to care for family.
    
    
21. Towards supporting working mothers, the Government has provided various tax incentives including for employers to provide childcare facilities at the office or to provide childcare allowances to its employees. In addition, Budget 2023 proposed a RM3,000 tax relief for childcare expenses and also a tax exemption on income for women returning to work after a career break.
    
    
22. In terms of governance, Malaysia, through LHDN, introduced the Tax Corporate Governance Framework (TCGF) Guidelines in March 2022, which was then further updated in July, with the goal of assisting companies in designing and operating their tax governance framework.
    
    
23. The idea behind the creation of TCGF is to help taxpayers reduce tax risks by evaluating how good and strong their tax governance framework is and taking corrective actions when needed. The TCGF also aims to make the relationship between taxpayers and the tax authority more cooperative and collaborative.
    
    
24. The Government has also put in place the Principles of Good Governance (PGG) for Government-Linked Investment Companies (GLIC), which focus on the integrity and loyalty of the board of directors and include a recommendation to set up a governance structure for the oversight of ESG factors in future investment strategies.

Ladies and gentlemen,

25. As everyone here is aware, one of the meeting’s topics is on “addressing new challenges to tax administrations in terms of human resources and organisational structure”.
    
    
26. On this, I would like to emphasise that tax administrations bear enormous responsibility for ensuring that a country’s financial position is adequate to fund the government’s planned spending. As such, tax administrations must be quick to adapt to changing socioeconomic conditions and new norms when conducting tax operations.
    
    
27. In terms of Malaysia’s experience, the COVID-19 pandemic has put us to the test and provided us with valuable experience. As for LHDN, I can attest that it is always ready to carry out the responsibilities entrusted to it by the Government in an efficient and effective manner, and that it has lived up to expectations in carrying out its role, as well as assisting the Government beyond tax operations. I believe the same holds true for tax administrations in SGATAR member jurisdiction.
    
    
28. Another topic that will be discussed at the meeting is “supporting SME’s compliance through digitalisation”.
    
    
29. SMEs play an important role in Malaysia’s economy, accounting for more than 97% of total registered companies in 2020. In 2021, SMEs contributed 37.4% of our GDP, and employed close to 48% of the workforce. And I believe such statistics are representative of other countries around the world.
    
    
30. As a result, more effort must be made to improve and enhance SMEs’ knowledge of tax compliance, and digitalisation is the way forward in supporting their compliance while reducing administrative burden.
    
    
31. Moreover, the OECD Forum on Tax Administration5 emphasised the importance of digital services to both tax administrations and SMEs. Providing services tailored to taxpayers’ needs, and engagement with them can lead to increased tax compliance.
    
    
32. To accomplish this, the Malaysian Government intends to phase in the electronic invoicing system (e-Invoicing) beginning next year in order to improve the efficiency of the Government’s tax system⁶. The implementation of e-invoicing will also aid in the implementation of a sustainable electronic business ecosystem⁷.
    
    

⁵ OECD Digital Services – Supporting SMEs To Get Tax Right 6 Budget 2023 Speech
⁶ OECD Electronic invoicing
⁷ OECD Digital Identification of Taxpayers 9 Budget 2023 Speech

33. E-invoicing implementation provides a more reliable audit trail, resulting in increased tax transparency and is viewed as one of the primary strategies for increasing tax revenue. This would complement one of Malaysia’s government targets for SMEs under the 12th Malaysia Plan, which is to digitalise 90% of SMEs’ operations by 2025.
    
    
34. The implementation of e-invoicing will also support the use of the Tax Identification Number (TIN), which will be mandatory for all documents and instruments. This will be a measure to broaden the collection of income taxes, ensuring a sustainable source of revenue for the Government. This is consistent with the OECD report⁸ which identifies digital identity as one of the key building blocks for future seamless tax administration.
    
    
35. Furthermore, Malaysia has agreed to implement the Two- Pillar Approach, which consists of Pillar One and Two, in order to create a competitive environment for both foreign and domestic direct investment, and to prevent cross-border tax evasion. This is being studied and is estimated to commence in 2024⁹.

⁸ OECD Digital Identification of Taxpayers
⁹ Budget 2023 Speech

D. PUBLIC TRUST IN TAX

Ladies and gentlemen,

36. Globally, taxpayer compliance has long been an issue, as taxpayer disobedience frequently leads to tax evasion. Public attitudes toward taxes are heavily influenced by public perceptions of corruption. When taxpayers perceive higher levels of corruption and diversion of public funds, their trust in the system suffers.
    
    
37. Moreover, while developing more effective and efficient collection methods may generate more revenue for the country, increasing tax morale, or taxpayers’ willingness to engage with the tax system, is thought to be the simplest and most cost-effective option.
    
    
38. Having said that, trust is the most important factor in tax morale. Engagement with the public is critical and fundamental in understanding taxpayers' behaviour on how they perceive the existing systems and who they trust the most to help improve those perceptions.
    
    
39. Therefore, to shift from taxing more to taxing better, we must be fair, equitable, reciprocal, and accountable in order to foster more trust in the tax system. I believe tax administrations all over the world are doing this collectively, with Malaysia being no exception.

E. CLOSING

Ladies and gentlemen,

40. It takes considerable effort to bring together tax administrations from the Asia-Pacific region for this SGATAR Annual Meeting in order to share experiences, knowledge, and evidence-based practises on tax-related issues. This event provides an excellent opportunity to strengthen collaboration among SGATAR member jurisdiction while also providing additional opportunities to reflect on and improve various taxation approaches.
    
    
41. I must commend SGATAR members for being proactive in engaging in discussions to address tax administration concerns and challenges. I am confident that SGATAR members will continue to discuss various aspects of tax administration in order to stay current on international developments in tax administration.
    
    
42. It is also time to convene tax leaders on this SGATAR platform to address SDG and ESG-related risks and issues involving tax, as well as share potential solutions to propel the growth of a sustainable economy and tax governance.
    
    
43. Before I conclude, I would like to thank LHDN for successfully organising this event, as well as all the delegates who have contributed significantly to the successful deliberation in this meeting. Your contributions and ongoing support are critical to achieving both national and international goals.
    
    
44. I wish the meeting success in meeting its objectives and hope everyone will benefit from the exchange of ideas and knowledge in moving towards the same direction to create a better and more sustainable future of taxation.
    
    
45. Aside from work and serious discussions, if you have spare time during your visit, please explore the beautiful sights of Kuala Lumpur. You might not want to miss out on our unique exotic combination of multiracial and multi-ethnic dishes, and I am proud to say that Malaysia’s reputation as a food paradise is well-known throughout the world.
    
    
46. On that note, I hereby declare the 51st SGATAR Annual Meeting officially open.

Thank you.

YB Senator Tengku Datuk Seri Utama Zafrul bin Tengku Abdul Aziz
Minister of Finance Malaysia
18th October 2022