Sunday, October 17, 2021

Fulfilling moral duty or being punished for profits: The windfall tax dilemma

Mixed reactions arise to a suggestion that companies reaping huge profits during the pandemic pay more tax.

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A call for the government to impose a windfall tax on companies that reaped profits throughout the pandemic has drawn mixed reactions with an economist saying it is not needed and a prominent retail tycoon welcoming it as a tool to close the income gap brought on by almost 20 months of economic disruption.

Ameer Ali Mydin who owns the Mydin hypermarket chain, among the businesses allowed to operate even during the height of the virus lockdown, said such a measure would not be extreme.

He said it not only makes good economic sense as the extra revenue could be used by the government to help those affected by the months-long closure of businesses, but also fulfils a moral duty.

“From a businessman’s point of view, we want to generate profit but it must be a fair profit,” Ameer told MalaysiaNow.

“In Islam, if a person earns a windfall, he is encouraged to donate to those who are less fortunate.

“They are not being asked to give everything, only some. That too is for the good of the people. If the country falls into poverty, the company will be affected too.”

Some sectors have seen exponential growth despite the pandemic which forced governments throughout the world to impose restrictions and, in some cases, a total shutdown of business activities.

Food delivery companies such as Grab and rubber glove maker Top Glove are among those who have reported huge profits, and many have questioned their social responsibility, asking if it should be left to choice.

Top Glove for instance recorded after-tax profits of nearly RM2.9 billion for the second quarter of the financial year – a 24-fold increase from the RM116 million recorded in the same period the year before.

Former prime minister Dr Mahathir Mohamad, a strong proponent of a windfall tax, had said it would help replace revenues lost due to the ravaging impact of the pandemic on businesses.

But Putrajaya has so far resisted such a move, arguing that it could be perceived negatively by investors.

Instead, it said that major glove manufacturers which have recorded profits would contribute RM400 million to the government’s battle against Covid-19.

Economist Mohd Afzanizam Abdul Rashid appears to support such a stand, saying there are concerns that a windfall tax could stunt economic recovery and make it difficult to attract foreign investors.

“Normally, profits are linked to a company’s innovation, creativity and efforts. If companies are taxed for recording high profits, it might be seen as a form of penalty,” Afzanizam, who is chief economist at Bank Islam Malaysia, told MalaysiaNow.

He warned that it could also drive companies to other countries that have a business-friendly tax system.

“We know that it is already hard to get foreign direct investments, so it would be better to take care of the existing industry,” he said.

Afzanizam said there are long-term implications of a windfall tax on the economy.

He also said the government’s tax revenue would grow in tandem with the reopening of the economy.

“The government’s role here is to ensure the smooth recovery of the economy.

“Right now the economy is struggling to recover and we fear that its progress will be stunted if a new tax is introduced.”

Ameer meanwhile said it would be pointless for companies to make huge profits when the country is still mired in trouble, adding that the problems would eventually affect the companies themselves.

He said such companies, including those in the rubber glove industry, have a duty to help Malaysians overcome the pandemic together, and that it would also be better if their contribution comes voluntarily.

“They could give a sum of money and advise on how best to use it, to ensure that the funds can be monitored and used properly,” said Ameer.

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