Bringing Inheritance Tax Back to Life, Will It Really Help Our Economy?

September 28, 2017

 

Market observers believe that reintroducing inheritance tax will not only affect the economy, but also the housing market.

Carmelo Ferlito, a senior fellow at the Institute for Democracy and Economic Affairs (IDEAS), said bringing back the inheritance tax may hinder people from saving as they would be taxed for it.

“Imagine a man who wants to pass on an estate of RM1 million to his son. Without a tax, he must save RM1 million. With a 50% tax, he must save RM2 million. Will he do it? That depends on how much time, energy and money he’s willing to sacrifice,” he said.

“The higher an inheritance tax, the more likely people will reduce their savings for the long term and increase their present consumption. This reduces a person’s desire and ability to pass on their wealth.”

Ferlito noted that reintroducing the tax would also affect investments since bank savings serve as a primary source of investments.

“Entrepreneurs need money to invest in businesses and usually these are in the form of loans from banks, which leverage on their customers’ savings,” he explained.

“If there is sufficient amount of savings, this can help lower interest rates for loans because the banks have a ‘safety net’.”

Ferlito made the statement after Consumers Association of Penang’s (CAP) suggested to bring back the tax in order to bridge the gap between rich and the poor within the country.

Malaysia has one of Asia’s highest Gini coefficient – which is used to gauge income gaps between the rich and the poor.

Abolished 26 years ago, inheritance tax applied to estates worth above RM2 million (five percent tax) and RM4 million (10 percent tax).

Meanwhile, others believe that bringing back inheritance tax may lead to capital flight.

“A lot of money leaves Malaysia because people will take their savings elsewhere, possibly buying shares, properties or keeping it in overseas bank accounts,” said Real Estate and Housing Developers’ Association patron Ng Seing Liong.

It could also affect the property market as those planning to acquire properties for investment may decide not to do so, he said.

“There is also the issue of those who inherit properties from their parents but are not financially able to pay the taxes on it,” he added. “They might be forced to sell the property just to pay the inheritance tax.”

 

This article was edited by the editorial team of PropertyGuru. To contact them about this or other stories email editorialteam@propertyguru.com.my

 

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