The threat of capital flight is already a reality, as Malaysia’s fiscal policies are driving talent and capital toward more tax-friendly regional economies, said William Ng, president of the Small and Medium Enterprises Association of Malaysia (Samenta).

He described the recent call for a wealth tax, raised by former MP Charles Santiago, as “a reactionary measure” that ignored the issues of competitiveness and leakages. “Taxing more is not the answer,” he told FMT.

Last week, Santiago proposed a 2% wealth tax on Malaysia’s richest people, saying the measure could help plug a RM10 billion fiscal shortfall following spending cuts by the government. The wealth tax could generate more than RM1 billion in revenue, he said, citing reports that Malaysia’s 50 wealthiest people had increased their fortunes by RM103 billion in a year, bringing their combined wealth to RM458 billion.

However, Ng said owners of small- and medium-sized enterprises already face “punitive double taxation” through corporate taxes of 24% and a 2% dividend tax introduced in the 2025 budget. The dividend tax applies to chargeable dividend income exceeding RM100,000 annually.

Ng said many entrepreneurs built their businesses with little to no support from the government. Further taxes could alienate them, giving an incentive for “our most productive citizens to look elsewhere”.

Ng said Malaysia’s taxes were causing the country to lose human capital, in a “self-inflicted exodus”, to more tax-friendly jurisdictions such as Singapore. “We lose roughly 135,000 Malaysians annually. This is the primary reason Malaysia is failing to achieve the 8% to 9% annual growth rates we are capable of,” he said.

Estimates from the World Bank and TalentCorp show that about 1.86 million Malaysians live and work abroad, while the country’s brain drain rate stands at 5.5% of the working-age population.

SME Association of Malaysia president Chin Chee Seong said Malaysia faces increasing pressure from neighbouring economies competing aggressively for investment and high-net-worth individuals.

“Singapore is more attractive for many high-net-worth people and regional businesses because of its lower corporate tax, stronger financial system and stable policy environment. Thailand, Indonesia and Vietnam are also competing strongly to attract investors.

“The better way is to reduce leakages, improve tax collection, widen the tax base fairly and encourage wealthy individuals and entrepreneurs to reinvest more money in Malaysia,” he said.