Poverty and Tax Incidence in West Malaysia

Abstract

The paper is a study of the incidence of the tax system upon households below a predetermined poverty line, with special emphasis on the rural poor. Com-paring households below the poverty line to above it, it finds the federal tax system of Malaysia to be progressive. But since the poor pay only a small fraction of total taxes, it finds limited scope for an effective tax policy to improve the economic conditions of the rural poor. It, therefore, corroborates the by now widely held view that expenditure policy is more effective than tax policy in significantly improving the relative position of the poor.