Giving only Langkawi tax autonomy a bad precedent, says economist

An economist has opposed an MP’s call for Langkawi to be given fiscal autonomy to manage its taxes, saying such special treatment would trigger similar demands from other areas and states.  

Center for Market Education CEO Carmelo Ferlito said he supported fiscal decentralisation in principle because it boosts accountability and shifts decision-making closer to the people. 

However, he told FMT, this cannot be implemented on an ad hoc basis for just one particular area. 

“If Langkawi gets special treatment, other places will ask for the same, and we will end up with a patchwork of exceptions. What Malaysia needs is general fiscal reform. 

“Both revenue and expenditures should be managed at the state and local level across the country. The federal level would retain only the major national functions, such as defence,” he said. 

Ferlito said a realistic compromise for Langkawi would be either a transparent, formula-based return of a share of tax revenue generated on the island, or a modest levy earmarked for its sanitation, water, transport, and environmental protection.

He said this should be a first step towards nationwide decentralisation, rather than a special privilege just for Langkawi. 

Last week, Langkawi MP Suhaimi Abdullah proposed that Putrajaya grant the island the autonomy to manage its taxes and use the revenue for local development.

He said large portions of the billions Langkawi generates from tourism went to federal coffers although various levels of government had to bear development and service costs.  

Structured model of fiscal decentralisation

Tax lawyer S Saravana Kumar and economist Barjoyai Bardai support exploring a structured model of fiscal decentralisation, with clearly defined revenue-sharing arrangements, transparent expenditure responsibilities, and measurable development outcomes. 

Saravana said it was important to distinguish between giving Langkawi greater control over revenue generated within the island and granting it autonomy to impose and administer taxes. 

Since Langkawi was a major tourist destination, he said, it was reasonable to examine whether a greater proportion of revenue generated should be channelled back into improving the island’s infrastructure, environmental management, and water supply.

“Nevertheless, fiscal autonomy should not automatically mean that Langkawi is entitled to retain every ringgit of tax collected there.

“Federal taxation also finances national infrastructure, public services, security, and redistribution between regions. Any reform must take those national responsibilities into account. 

“I would, therefore, support examining a structured model of greater fiscal decentralisation, transparent revenue sharing, and local accountability, rather than immediately advocating a separate tax jurisdiction for Langkawi,” he said. 

Barjoyai, of the Malaysia University of Science and Technology, mooted a Langkawi tourism revenue-sharing scheme under which Putrajaya could agree to dedicating a portion of tourism-related revenue from the island to a development fund. 

He also suggested that the government review Langkawi’s existing tax rates, particularly to determine whether they adequately reflected the cost of services at hotels, commercial premises, and others. 

“However, any revision should consider the effect on small businesses, property owners and residents. Increasing local charges indiscriminately could raise operating costs and weaken the competitiveness of local enterprises,” he said. 

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