Govt’s current focus unlikely on fiscal consolidation

KUALA LUMPUR: Tax reforms could be delayed further as the government’s focus currently is not on fiscal consolidation or the medium-term fiscal framework, according to RHB Investment Bank Bhd.

In a note yesterday, the research firm said it believes that major changes in corporate, personal income and capital gains taxes are unlikely.

“Changes to capital gains tax for the property sector as well as inheritance tax announcement is not expected by us as well,” the firm said.

It said the re-introduction of the goods and services tax (GST) is unlikely to be announced as it could be included in the interim budget announcement in March or April next year or in Budget 2024.

“GST implementation is unlikely to be in 2023. The current prosperity tax will not be extended in 2023. Windfall tax rates will remain unchanged in 2023,” RHB Investment said.

It also said that without new taxes, sources of government revenue in 2023 are likely to remain the same as in 2022.

According to the bank, the 2023 pre-budget statement has a line-up of strategies to increase revenue through increased tax compliance and managing leakages.

“Tax administration would be further improved through comprehensive registration of taxpayers, better training of tax personnel and improved registration of cross-border trade,” it said.

The Special Voluntary Disclosure Programme for 11 indirect taxes is likely to be continued, the firm said, adding that the expansion in the scope of sales and services tax (SST) might be possible as well prior to the implementation of GST in future years.

Another source for the government is higher commodity prices related to revenues.

“In our view, Budget 2023 could include an assumption of around US$70-US$80 (RM322.76-RM368.86) per barrel for Brent oil prices and this would lead to resilient revenue collection from the petroleum income tax and royalties,” RHB Investment said.

Faced with the threat of elevated inflationary pressures as well as the likelihood of a general election soon, it expects the upcoming Budget 2023 to be challenging as the government has to strike a balance between ensuring the well-being of the people as well as the sustainability of the government’s finances.

“As Malaysia has entered the endemic phase, economic activities in 2023 will be fully normalised albeit at a slower pace of 4.5% year-on-year (where in trend, growth in our assessment is 5.0%) compared to 6.0% in 2022,” RHB Investment said.

It said that resilient labour market conditions in the second half of 2023, with some modest deterioration in the first half of 2023 due to weaker global growth, would be supportive of the growth in personal income taxes while robust private consumption would lift the SST collection as well.

“This should lead to resilient corporate profits and corporate income tax revenues,” it noted.