By Dominic Tham
ONE of the main functions of taxes is the redistribution of wealth, to create a more equitable society. Worldwide, countries impose higher tax on the rich and spend the money collected on the poor, whether in direct cash aid or through fiscal spending like building schools or offering subsidies on essentials. The taxes imposed on the poor are usually lesser compared with the rich, if at all.
But sometimes, conventional tax regimes do a poor job in wealth distribution. For example, while the COVID-19 pandemic has hit the economy hard, with joblessness rising and many companies folding, some corporations saw their profits hit the roof.
Unfortunately, the windfall received by these companies is often only enjoyed by a select few, resulting in the widening gulf between the haves and have-nots.
This is why some are pushing hard for the government to introduce a “windfall tax” on companies that have made huge profits while many others are languishing under the weight of the pandemic. Primarily, they have been targeting glove makers, which have seen their turnover soar by three digits in percentages.
Top Glove Corp Bhd – the world’s largest rubber glove maker – has seen its net profit soar 417% year-on-year (yoy) for 2020 to RM1.87 bil. Supermax Corp Bhd reaped a bountiful RM789.5 mil in the first quarter of financial year 2021 alone, nearly a 32-fold increase from the same period last year.
Top Glove paid out RM916.2 mil in dividend for 2020 while its chairman Tan Sri Lim Wee Chai took home nearly RM4 mil in dividends, salaries and other perks, according to the company’s annual report.
There are compelling reasons why these companies ought to be slapped with the windfall tax. For one, their huge profits came from a surge in demand for latex gloves and not because their costs of doing businesses have dipped.
In other words, the windfall is attributed to being in the right industry at the right time, not due to business ingenuity or entrepreneurial genius. It is only fair that these companies share a portion of the windfall with those who have been badly hit by the pandemic.
Windfall taxes are not new in Malaysia. In 2008, a one-off windfall tax of 30% was imposed on the return on assets above 9% for independent power producers (IPPs). In January last year, a windfall tax of 3% was imposed on palm oil producers whenever palm oil prices went above RM2,500 per tonne.
In 2018, Thailand introduced a 5% windfall tax for developers and landlords who gain financially from government investment in public transport. Last year, China’s Shandong province started to impose a levy on windfall profits earned by independent oil refiners.
Often, windfall taxes are usually only one-off and for specific industries only. Therefore, the notion that such taxes would drive away investors is totally unfounded. And with profits at astronomical levels, there’s only so much glovemakers can plough back into their companies.
It is time the Government take off its gloves and look into low-lying fruits to expand its sources of income to help it kickstart the pandemic-battered economy. – April 2, 2021
Dominic Tham is a Focus Malaysia editorial contributor.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
Photo credit: Shutterstock
