‘5 pct petroleum tax a good strategic move’
As for Sarawak, the announcement of 5 per cent petroleum tax through the 2019 state budget indicates a good strategic move especially in diversifying and broaden the tax base for the economy. — Professor Dr Fatimah Kari
KUCHING: A senior economist from University Malaya revealed that agencies such as World Bank and International Monetary Fund (IMF) have strongly encouraged the use of commodity/resource tax such as Petroleum tax as a critical source of government revenue for public expenditure.
“As for Sarawak, the announcement of 5 per cent petroleum tax through the 2019 state budget indicates a good strategic move especially in diversifying and broadening the tax base for the economy,” Professor Dr Fatimah Kari told thesundaypost.
She was commenting on Chief Minister Datuk Patinggi Abang Johari Tun Openg’s statement to the media at the State Legislative Assembly that the Sarawak government has started collecting revenue from the imposition of five per cent sales tax on petroleum products which took effect on Jan 1 this year.
“I don’t have the figure but we are collecting. That’s why you notice our (Sarawak) first quarter revenue is over RM2 billion. It is all accumulated inside there,” Abang Johari told newsmen.
Fatimah suggested that Sarawak may want to consider designing downstream petroleum tax as a future option in strengthening fiscal tools. She believed that the increase in state’s revenue is expected to be from spin-off generated from the 5 per cent sales tax on petroleum production.
“I will continue to maintain the argument that imposing the 5 per cent petroleum tax is commendable in light of the current economic challenge. Thus, 2019 state budget should be seen as a pro-active growth budget that is expected to deliver the impact within the short term period,” she said.
Fatimah stressed that even though the exact data may not be available, the RM2 billion may fairly represent the forecast RM3.89 billion revenue expected to be collected based on 5 per cent petroleum tax as announced under 2019 state budget.
“The possibility of increase in state revenue is quite in line with the experience in other countries who have imposed similar form of tax. Such effect is fully endorsed by agencies such as World Bank who once published a report that the petroleum tax revenue to state coffers will be fairly elastic i.e. government tax revenue will easily increase due to the introduction of such tax or any upward adjustment of the tax rate,” she explained.
Fatimah said one of the reasons this tax can be revenue elastic is that petroleum tax is one of the easiest ways to get revenue and collecting such tax is relatively straightforward, and the consumption of petroleum as a group does not respond to price change.
“In pure basic economics, the unresponsive price change (demand is inelastic) while income/gross national product (GNP) will continue to have a positive influence on the consumption of resources such as petroleum and this may explain the buoyant revenue of RM2 billion in the first quarter,” she said.
She, however, said that the actual impact on state revenue may need extensive data as past experience indicates that developed countries tend to continue to depend on petroleum or petroleum product tax and this may be more important for small and resource rich states such as Sarawak.
“The debate in economic growth and development among development practitioners tend to agree that additional amount of natural resources will create the multiplier effects through greater production and trade to the global market.
“Given such consensus, such positive scenario may need to be sustained where (a) State should continue to support the positive correlation between petroleum consumption and gross national product created out of the industry; (b) Given the buoyant revenue based on the 5 per cent petroleum tax as announced in 2019 state budget, then there is a possibility that the percentage increase in the state’s revenue may surpass the percentage increase in state gross national product (GNP) in the state,” she added.
Fatimah said the above scenario should be able to indicate the importance of petroleum tax for a state like Sarawak.