Inheritance tax ‘could help reduce wealth inequality’?

• While we don’t disagree with paying taxes on money made and even money spent (in the form of GST), paying taxes on things we own that we have already paid taxes on with already taxed money would be a SCAM. 

The issue of inheritance tax has recently resurfaced when it was reported as one the proposals by “some financial analysts” for the upcoming Budget 2025. The purpose cited by the so-called expert was to “prevent the accumulation of unproductive wealth in families; which could help reduce wealth inequality”. And as with all taxes, it would of course, as claimed, be helpful in broadening the tax base and boosting government revenue. 

This news has so spooked the market that it was necessary for a senior cabinet minister in the ruling government to deny such assumptions as unfounded rumours, and put the uneasiness to rest. Many are relieved that the nonsense has been quelled.   

Nevertheless, short of repeating ourselves, the National House Buyers Association (HBA) would like to appeal to all analysts, ministers, policy makers or anyone who thinks that inheritance tax is the solution to wealth equity — to read and understand our exposition on this subject matter. Titled “Inheritance tax akin to punishing people's savings”, it was published three years ago with a clear explanation on why inheritance tax would be counterproductive to achieving any intended greater good for all.   

The grounds apply then, apply now and will still apply in future unless some drastic paradigm shift occurs in our nation’s socio-economic structure. Until then, we hope we do not have to be made to repeat ourselves yet another time. 

In this write-up, we shall just raise some points not covered in the previous article. 

What is inheritance tax? 

Inheritance tax is applied on the estate — property, money and possessions — of someone who has passed away. It is also often referred to as inheritance and estate taxes, which in essence is referred to as “death” taxes. It can have a significant financial impact on one’s assets if one is not ready for the tax imposition. 

Inheritance and estate taxes are imposed differently depending on the country. An estate tax is calculated on the net value of the deceased’s overall property while an inheritance is calculated on the inheritance received by individuals. In essence, beneficiaries i.e. individuals who inherit the estate, do not normally pay tax on “things” they inherit. However, there may be taxes to pay such as rental income. Generally, money from the estate is used to pay inheritance tax, which, in this case, is paid by the executor if there is a will. 

Put this way, inheritance and estate taxes could purportedly be seen as a wealth distribution tax. However, would the taxes from the deceased’s properties go into the government coffer for “usage purposes” and create what is hoped to ostensibly provide equal opportunity for everyone? 

Estate duty taxes in Malaysia vide Estate Duty Enactment, 1941 was in fact abolished back in 1991 as it was deemed as a dysfunctional tax regime by the then finance minister. In 2009, Singapore too had abolished the inheritance tax, paving the way to entice the wealthy investors to move their assets, contributing to a vibrant growth of Singapore. 

Counterproductive to government’s promotion of homeownership

The Government has time and again encouraged the rakyat to invest in immovable or real property towards homeownership and to spur the economy. Ministers have even participated in launching property developers’ Homeownership Campaigns throughout the country.

However, with the proposal of an “inheritance tax”, the people would think twice about buying properties for investment or to pass them down to the next generations. This will set back the housing industry instead of advancing it as one of the country’s economic drivers.  

How to rest in peace?

To save for the rainy days and pass some form of wealth down to our next-of-kins is not just a Malaysian culture, but a prudent practice that reflects parental love across cultures. It is how we extend our love and care to our loved ones, in life as well as in death. 

There is a saying: “There was death and taxes, and taxes were worse because at least death didn’t happen to you every year”. If this fact is upturned with the implementation of inheritance tax, many would surely turn in their graves. 

While we don’t disagree with paying taxes on money made and even money spent (in the form of goods and services tax (GST)), paying taxes on things we own that we have already paid taxes on with already taxed money would be a scam. 

Having been assured that such a punishing tax is not on the cards, we envisage that there will be more confidence in our rakyat and investors to increase their capital assets in our country, boost gross domestic product where the increased value of capital assets will help create more jobs. In fact, prohibiting these taxes may result in higher income tax collection due to an increase in the country’s economic growth.

A better alternative to reasonable taxation

If the government wishes to reduce the fiscal gap by raising government revenue and boosting tax collection, it should consider implementing the GST, which is a far more superior regime than the sales and services tax (SST). This is because SST is a single-stage tax applied either at the stage of manufacturing or at the level of consumption, while GST was a multi-stage tax imposed on the supply chain process which included the production and distribution stages. All levels of consumption of goods and services are within its purview and scope except those exempted. That said, the setting of the tax rate percentage should be reasonable and not overly burdensome.

More importantly, instead of looking for a new revenue stream, the first order of business should be to rein back government spending and reduce wastage, and enforce the forfeiture of corrupt monies within and outside all government entities.

This article is written by National House Buyers Association (HBA) honorary secretary-general Datuk Chang Kim Loong. 

HBA can be contacted at: 

Email: [email protected]
Website: www.hba.org.my
Tel: +6012 334 5676

The views expressed are the writer’s and do not necessarily reflect EdgeProp’s.

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