‘MALAYSIA NEEDS FIRM YEARLY TAX TARGET’

Government revenue projected to decline to 15.6pc of GDP this year, says economist

MALAYSIA needs a firm annual tax target to gauge collection potential from taxes as subsidy rationalisation alone is not sufficient to boost government coffers, said World Bank lead economist for Malaysia Apurva Sanghi.

The government’s revenue is projected to decline to 15.6 per cent of gross domestic product (GDP) this year from 17.3 per cent last year, mainly due to lower investment income under non-tax revenue collection.

Specifically, the government anticipates lower dividends from Petroliam Nasional Bhd even though its assumption for the global oil price this year is slightly higher.

Sanghi said Malaysia had consistently fallen short of its tax collection.

“There’s a pressing need to increase this revenue, but the question remains: by how much? What’s missing is the announcement of a concrete revenue target. So, currently the tax-to-GDP target is 12.6 per cent but what should the target be? Should it be 15 or 20 per cent?

“If you don’t set a target then you don’t know where you’re going. It’s important to know where you’re going,” he said at the release of the bank’s latest edition of “Malaysia Economic Monitor Bending Bamboo Shoots: Strengthening Foundational Skills” yesterday.

Sanghi said the government had implemented several measures to boost revenue.

These include the prosperity tax, personal income tax adjustments, higher service tax and increased capital gains tax.

Although these initiatives indicated some progress in enhancing tax collection, they still fell short of meeting the required targets, he added.

Subsidies and social assistance spending are expected to decline to 2.7 per cent of GDP this year from 3.9 per cent in 2023, mainly from lower fuel subsidies.

Rigid spending, which includes payments related to emoluments, pensions and debt service charges, is projected to increase to 58.6 per cent of total operating expenditures this year (2023: 55.3 per cent).

The debt service ratio is projected to increase to 16.2 per cent of federal government revenue this year (2023: 14.7 per cent), higher than the 15 per cent administrative limit practised by the government.

The government has yet to finalise the modality of targeted subsidies, such as the eligibility threshold, amount of fuel subsidies per person and how the subsidy will be disbursed.

Several tax-related measures had been implemented this year to broaden the tax.

For instance, from March 1, the government imposed a capital gain tax of 10 per cent on the net gain of the disposal of unlisted shares for companies as well as a higher service tax for selected services with a broader scope.

While these measures show positive signs of the government’s efforts to enhance tax collection, they are still insufficient at addressing the revenue inadequacy arising from growing tax gaps in the country.

If you don’t set a target then you don’t know where you’re going.

APURVA SANGHI World Bank lead economist for Malaysia