KUALA LUMPUR (Nov 23): Malaysia should consider implementing the capital gains tax, instead of the inheritance tax, said the head of the Inland Revenue Board (IRB).

IRB chief executive officer (CEO) Datuk Seri Sabin Samitah said that while decisions to introduce new taxes lie with the government, it should look at implementing the capital gains tax as the inheritance tax may not have much impact on government revenue given its narrower structure.

"In an effort to broaden the tax base and increase revenue, so that Malaysia can be on par with other countries in the region, the government may or should consider introducing the capital gains tax in the future," he said at the Deloitte TaxMax 2020 webinar in response to a question about taxation on income from the stock market.

The IRB CEO said the introduction of the capital gains tax would be a good measure of ensuring equity and fairness in the tax system.

He noted that people in wealthier income brackets are more likely to have capital income, compared to those in lower-income groups. As such, revenue gained from such a tax can be used to address poverty and income inequality.

Sabin explained that Malaysia's existing tax structure base is already quite narrow as it is reliant on corporate income tax, personal income tax and petroleum tax, which has seen a slight drop due to oil price volatility.

He also pointed out that tax planning and evasion are enabled in the absence of the capital gains tax.

Sabin added that capital gains tax is important when it comes to taxation on cryptocurrency, intangible and other digital assets in the future.

"Without the capital gains tax, these assets will be left untaxed, and it encourages aggressive tax planning and evasion," he said.

Capital gains tax would help resolve issues related to the Real Property Gains Tax, namely disputes concerning the categorisation of gains on property and valuation of shares in real property companies, he added.

Earlier during his presentation, Sabin said that under the current unprecedented impact of the Covid-19 pandemic on the economy, the government could only look at reducing corporate tax rate if it implements new taxes, such as the widely debated capital gains tax.

He pointed out that a reduction of 1% in the corporate income tax rate would result in more than RM2.6 billion worth of revenue loss to the government.

According to Sabin, Malaysia may look into reducing its corporate income tax rate gradually in the next few years, in order to remain competitive against its neighbours when the economy recovers and stabilises.

"The reduction should be gradual to reach the targeted 20% tax rate, if Malaysia wants to be part of the majority of Asean countries. This [gradual approach] is important so that it would impact the national coffers, and at the same time be able to attract foreign direct investment (FDI)," he viewed.

Sabin highlighted that lowering corporate income tax rate is not the only factor for Malaysia to have a competitive advantage over neighbouring countries.

"According to the World Bank 2020 Report, Malaysia is 12th in the world for ease of doing business (2020) and ranks second in Asean in the Global Competitive Index 4.0 2019," he said, noting that a conducive investment environment and the repackaging of incentives towards specific investors will help attract FDI.

Malaysia's corporate tax rate is 24%. In contrast, Singapore and Indonesia have corporate tax rates of 17% and 22% respectively, while Thailand's stands at 20%.