Salutations
- Dato’ John Patrick Anthonysamy
Undersecretary of the Tax Division, Ministry of Finance
- Datuk Hisham bin Rusli
Deputy Chief Executive Officer, Inland Revenue Board of Malaysia
- Shaharrudy bin Othman
Deputy Chief Executive Officer, Inland Revenue Board of Malaysia
- Soh Lian Seng
President, Chartered Tax Institute of Malaysia
- Alan Chung
Deputy President, Chartered Tax Institute of Malaysia
Salam Ramadan. Salam Malaysia Madani.
Discussing tax in context of the end of the neoliberal era
Tax is always contentious, since time immemorial. Taxing from whom, taxing for who, and for what, will always feature heavily in the debates of every society.
But, now in March 2026, we are at a crossroads of global history. Since the Covid-19 pandemic in 2020, the world is no longer the same. Then came President Donald Trump’s Liberation Day on 2 April 2025, leaving world trade in chaos. And, on 28 February 2026, Israel and the US waged a war on Iran which is likely going to end a phase of the world as we know it since the end of the Second World War 80 years ago, or at least since the end of the Cold War in 1989.
My title for this lecture is “discussing tax in the context of the end of the neoliberal era”.
In the past several decades, there have been a prevailing set of ideas which essentially try to avoid taxes, and especially in attempting to justify that the rich should not be taxed. Neoliberalism was the dominant ideology of the world in the past half a century. The ideas were so prevalent that many political and business leaders took it for granted as the gospel truth.
The set of ideas include:
- The purpose of the corporations is to serve its shareholders’ interests, and nothing else. Workers, consumers, the environment all do not count in the corporations’ equation.
- It was assumed that developing countries could just export their ways to richness, without needing a domestic market, thus there is not much effort to sustain the middle class, whether in the advanced economies or the developing economies.
- Wars, pandemics, and climate disasters were not priced in as it was assumed that the world was largely peaceful and uneventful, underpinned by the role of the US as the “global policeman”.
In neoliberalism’s “the world is flat” myopic yet powerful vision, capitals are mobile and footloose, and the governments around the world will have to do everything to court capitals by lavishing the richest with all sorts of tax holidays and tax cuts to prevent capital flights.
There are tax havens such as the British Virgin Islands, Cayman Islands, and Bermuda.
Quinn Slobodian in his book “Crack-up Capitalism: Market Radicals and the Dream of a World Without Democracy wrote that “From the 1990s onwards, globalization has shattered the map, leading to an explosion of new legal entities: tax havens, free ports, gated enclaves and special economic zones. These spaces are freed from ordinary forms of regulation, taxation and mutual obligation – and with them, ultracapitalists believe that it is possible to escape the bonds of democratic government altogether.”
Democracy is often depicted as a nuisance to the capitals, and that democracy is seen as inherently a problem. The general belief of neoliberalism is that capital is not captive, nations are therefore encouraged to compete to lower taxes for the rich.
In a television series in 1980, Milton Friedman called Hong Kong “the freest market in the world” where everyone traded their services and times for money, with minimum government interventions and a very low tax rate. “If they fail, they pay the price,” according to Friedman.
Because Hong Kong has a low tax rate, Singapore attempts to match it, and the rest of the region, including Malaysia, is benchmarked against the tax rates of Hong Kong and Singapore. In the last two decades, Dubai also entered the fray to offer a low tax rate environment.
But I would like to bet that in a decade’s time, it is Hong Kong and Singapore that will have to raise their tax rates, rather than Malaysia reducing the top tax rate.
The very dynamic and industrious Hong Kong that Milton Friedman saw in the 1970s was a result of two rounds of exodus of refugees from Mainland China, after the Communist took over in 1949, and during the Cultural Revolution which started in 1966.
Today, Hong Kong’s median age is 47 while Singapore’s is 43 years old. Malaysia’s median age is 31 years old. 17% of Hong Kong people and 20% of Singaporeans are above 65 years old. For comparison, currently 8% of Malaysia’s population are above 65 years old. Hong Kong and Singapore eventually will have to find tax revenue to pay for an aging society, especially health care.
Hong Kong and Singapore, and many Asian societies, are also facing ultra low fertility rates. The high housing costs, high childcare costs, the constant rat race such as the “996” working culture in China, and the heightened sense of precarity and the lack of economic security about the future certainly played a role in dissuading young people from bringing up kids.
The lack of state capacity or willingness in providing a socially uplifting support system is a cousin of the low tax rate. A precarious society is also a hotbed for populism, which eventually would threaten democracy and prosperity for all, including for businesses.
To debunk the talk of capital being footloose and mobile, just look at Dubai as a low tax hub, as well as the global supply chain, since 28 February 2026. When wars strike, capitals have a limited number of places to flee to. Between wars and taxes, between chaos and order, capital owners increasingly realise that they, too, need a home ground, a national home. At the least they need to have a government to call when they need a repatriation flight out of Dubai.
During an age in which global trade is contentious, it is in the enlightened self-interest of capital owners to ensure a thriving national middle class sustained by across-the-board availability of good jobs so as to have a domestic or regional market to count on just in case all other markets are shut. Since the end of the Second World War, starting with Germany and Japan, many nations became rich by exporting to the US. But the US is unlikely going to be the market of the last resort forever. Therefore, domestic and regional demand is an important counterbalance to over-dependence on the US market. But domestic demand could only happen sustainably if there is widespread prosperity in the form of a strong middle class.
Let me examine two specific issues – GST and investment incentive – to illustrate how we should see them in the context of the end of the neoliberal era.
GST
While I acknowledge that the current SST may have certain cascading effects that have to be dealt with and improved upon, it should not be the basis to switch to a consumption tax, whether one calls it GST or VAT, at least not until Malaysia becomes a richer nation.
Last week, a senior business leader showed me a WhatsApp group message that made me laugh, but also felt sad at the same time. A businessman was arguing for the re-introduction of the Goods and Services Tax (GST), claiming, like most commentators, that it is “fair” and good for businesses. But what is good for businesses may not be good for the rest of the population.
GST is certainly “good for businesses” as businesses could pass on all the taxes to the consumers. But GST or VAT, is inherently unfair and regressive. A person who is earning RM200,000 per month and spends a quarter of it, would pay say 6% of GST or VAT on RM50,000 spending, and he gets to save the rest. A person earning RM2,000 per month is unlikely to have any savings, and therefore, he would be taxed for the entire amount of what he earns and spends.
The argument that too few Malaysians are paying taxes and therefore GST or VAT must be introduced to make more people pay, is essentially making the poor pay taxes.
Why do so few Malaysians pay tax? The simple answer is that they do not earn enough to pay taxes. Assuming that after deductions, only those who earn more than RM4,000 will start paying taxes. As of September 2025, Malaysia’s median wage is RM2,864, far below the taxable income threshold. To increase the number of Malaysians paying taxes is to get employers to pay Malaysian workers more.
While I am personally against the idea of a consumption tax for the above stated reasons, Prime Minister Dato’ Seri Anwar Ibrahim and the Government offered a good compromise: if median wage rises to RM4,000, the Government could consider introducing GST.
Here is where the WhatsApp message made me laugh and sad at once. The businessman said he wanted GST to be introduced but he doesn’t want the median wage to rise to RM4,000. In other words, he wants to eat the cake and have it too. He wants to pass on the tax burden while wanting to keep wages low forever.
The neoliberal ideology has resulted in capital owners around the world feeling entitled as they think they could continue to relocate to cheaper production sites, and governments have to accept their constant demands to suppress wages and to lower income taxes or to pass on tax burdens to the consumers. And, it is assumed that there will always be a market to export to, therefore they see no need for collective action to ensure that there is domestic demand through a vibrant domestic middle class.
Investment incentives
Let me now touch on investment incentives. The Promotion of Investment Act (PIA) was promulgated by the Parliament in 1986 for a reason. In 1985, Malaysia faced its then worst economic downturn. The PIA provided a framework to incentivise foreign investments. As a nation, Malaysia was very lucky. The United States forced Japan to appreciate yen in the Plaza Accord of 1985. By 1988, it was too expensive to export from Japan. Therefore, Japanese factories, together with their Korean and Taiwanese suppliers, relocated to Malaysia and our neighbours Singapore, Batam of Indonesia, and Thailand, fueling Malaysia’s first economic takeoff.
The 1997 Asian Financial Crisis and China joining the World Trade Organisation in 2001 meant that Malaysia – neither cheaper than China then nor as sophisticated as Korea or Taiwan – was not needed by foreign corporations, resulting in two lost decades.
But the world is no longer chasing efficiency aka the cheapest source of everything. From “Just-in-time” to “Just-in-case”，corporations are paying for redundancy, dual-source, and multiple production sites. Malaysia has a relatively comprehensive supply chain and a very capable workforce to meet the needs of the time.
Malaysia must maximise benefits for Malaysian corporations and workers when it comes to foreign investments. While we encourage foreign investment, we must ensure that there is high local buy or local content, so that Malaysian companies benefit, and we must ensure that Malaysian workers are well paid by foreign investors. Beyond that, there must be genuine technology transfer.
There must be a level playing field between foreign companies and Malaysian companies. We must think about creating Malaysian multinational companies and not just serving foreign multinationals. We are also moving away from thinking of Malaysia just as a “trading nation” but to see Malaysia as a “technology nation”, thus there is a need for us to ensure that technology is developed and the “Made by Malaysia” vision is realised.
It is in this context that I am extremely delighted that the New Incentive Framework (NIF) has been rolled out for the manufacturing sector on 1 March 2026, and subsequently in the nearest future, for the services sector.
The NIF will determine incentives based on the National Investment Aspirations (NIA) Scorecard. The NIA and NIF, jointly developed by MOF, Bank Negara, and MITI, have been a long-time in the making.
I would say that this is the most significant departure and a fresh start since PIA was passed by Parliament forty years ago. Finally, Malaysia is moving from chasing investment numbers to pursuing quality investment.
The NIA Scorecard measures economic complexity, high value jobs, developing new and current clusters, strengthening domestic supply chain, lifting lag behind communities, and promoting ESG.
I hope the nation will soon reach a consensus to make the NIA Scorecard the only standard for reporting of investment performance. Perhaps next year MIDA could consider not reporting the total investment amounts but showcase the NIA Scorecard. Reporting total investment amounts often results in us blindly accepting investments that do not generate sufficient economic and social outcomes for Malaysia and Malaysians.
The neoliberal ideology underpinned this worry that “if we do not give a lot of tax holidays and incentives for investors, capitals are not captive, they would leave for Vietnam or other countries”.
When I was Deputy MITI Minister, whenever someone came to me to say that “if you do not match the incentives provided by Vietnam, the company would move there”. My answer is always the same: if Vietnam suits you better, we should help you to relocate to Vietnam. What Malaysia has to offer is a premier location, infrastructure, skilled labour, and innovation, and we price ourselves higher.
Anyhow, in the twilight of the neoliberal era, Malaysia, Vietnam, Singapore, and all other ASEAN countries, should stop believing that capitals are footloose, especially investments that require a physical supply chain and actual services on the ground. There are only so few places to run to.
ASEAN Member States must avoid a “race to the bottom” in terms of tax cuts and tax incentives, workers’ rights and wages, as well as environmental standards.
I would like to suggest that CTIM leads tax experts to formulate an ASEAN Agreement on Minimum Tax, drawing inspiration from the Global Minimum Tax, and socialise the ideas with colleagues in other ASEAN Member States, and hopefully set the tax floor in ASEAN in the foreseeable future.
An ASEAN that is racing to the top in terms of innovation and the creation of new technology, providing good jobs for our people to sustain a strong middle class through strong domestic and regional demand, and ensuring that there is a sense of economic security for everyone should be top on our agenda and is good for everyone.
I hope I have given you a broad overview of the end of the neoliberal era and the sorts of society and nation we hope to shape through tax policies. Our common purposes are to see a strong middle class in Malaysia and an economically secure people, a thriving industry built upon technology, and a resilient nation in times of global chaos.
Thank you very much for listening. Lastly, congratulations on the opening of the new CTIM office and I am honoured to officiate it. I wish you well.