The reintroduction of an inheritance tax in Malaysia's upcoming 2025 Budget could spell financial hardship for middle-class families and small business owners, according to the Institute of Strategic Analysis and Policy Research (Insap). The think tank voiced its concerns over the potential burden such a tax would impose, stating that it would disproportionately affect small and medium enterprises (SMEs), many of which are family-run.
Insap chairman Pamela Yong emphasized that reintroducing the inheritance tax, which was abolished in 1991, would be counterproductive in addressing the shortfall in government revenue. Instead, it would stifle entrepreneurship and discourage wealth creation within the middle class, as family businesses would face additional financial hurdles.
The proposed inheritance tax is one of five new taxes being considered, as reported by Utusan Malaysia. Other potential taxes include an unhealthy food tax, a carbon pricing tax, a high-value goods tax, and an artificial intelligence (AI) tax. While some of these measures, such as the unhealthy food tax and carbon pricing tax, are aimed at addressing health and environmental issues, the inheritance tax has faced strong opposition from several quarters.
The National House Buyers Association (HBA) also voiced its disapproval, with secretary-general Datuk Chang Kim Loong calling the inheritance tax a form of "double taxation" that penalizes individuals for years of hard work. According to Chang, many Malaysians have invested their wealth in property, seeing it as a safeguard against inflation and a way to provide for future generations.
Chang argued that taxing these assets upon the owner's death is not only unfair but also discourages economic growth. "The inheritance tax is essentially taxing inflation," he said, pointing out that the appreciation of property values over time is often due to external factors like inflation, increased demand, and limited land availability. This, he added, makes it unjust to impose a tax on assets that have already been subject to taxation during their owner's lifetime.
Both Insap and HBA believe that imposing an inheritance tax could lead to capital flight and deter successful individuals from staying in Malaysia, thus hindering economic progress. Chang stressed that as the country aspires to become a developed nation, it should encourage, not punish, individuals who have worked hard to improve their financial standing.
Yong echoed similar concerns, arguing that SMEs, many of which are family-run, would bear an unnecessary financial burden if the tax were reinstated. These businesses, crucial to Malaysia's economic fabric, could face additional barriers to growth, further limiting their ability to create wealth and contribute to the country's economy.
While some analysts have argued that the inheritance tax could reduce the concentration of unproductive wealth within families, thereby narrowing the wealth gap, critics maintain that such a policy overlooks the broader economic consequences. By penalizing wealth accumulation, they argue, the tax could undermine the very entrepreneurial spirit that drives economic progress.
Moving forward, both Insap and HBA have called for a reevaluation of the inheritance tax proposal, warning that its implementation could hinder Malaysia's economic growth, especially for the middle-class families and SMEs that form the backbone of the nation's economy.
As the debate around the 2025 Budget continues, it remains to be seen whether the government will heed these concerns or move forward with its plans to broaden the tax base.
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