KUALA LUMPUR (April 2): The government needs to take strict action on illicit trade in order to recover billions in revenue that can be used for Covid-19 economic recovery efforts.

Retail and Trade Brand Advocacy (RTBA) managing director Heath Michael said that every ringgit will count in the economic recovery from the virus, and radical action is needed from the government.

“This is all the more important, given that the tax revenue to gross domestic product (GDP) ratio in Malaysia had declined progressively from 15.6% in 2012 to 12.0% in 2018 and 11.8% in January-September 2019,” he said.

He cited former finance minister Lim Guan Eng, who said that Malaysia’s shadow economy accounts for 21% of GDP, amounting to RM300 billion annually.

Michael added that quick-win strategies for governments to shut shown illicit trade include policies that address demand and supply factors, stricter border enforcement and enhanced collaborations at the intra-regional level.
 
“Times like these provide an excellent opportunity for countries to work together to support and rebuild economies,” he added.

The RTBA defines illicit trade as smuggling, counterfeit and tax evasion activities that lead to a loss in government tax revenues, legitimate business being undermined and consumers being exposed to unregulated or unsafe products.

Such products include counterfeit or smuggled luxury goods, electronics, alcoholic beverages and cigarettes that are usually sold illegally on the black market.

The statement also highlighted an International Monetary Fund Working Paper, which found that the shadow economy contributed 31.5% of GDP from 1991 to 2015, compared with Singapore (11.9%), Australia (12.1%), China (14.7%), Hong Kong (14.7%), Vietnam (18.7%), India (23.9%), Indonesia (24.1%) and South Korea (25.7%).

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