Achieving 12MP fiscal target challenging without efficient tax system — Analysts

Achieving the fiscal deficit target of between -3.5 to 3.0 per cent by 2025 under the 12 Malaysia Plan (12MP) will likely be challenging without an efficient consumption tax system such as the goods and services tax (GST), analysts observed.

“Despite the improvement in the delivery system to reduce leakages and wastages as well as build fiscal strength, we still believe the fiscal deficit target of between -3.5 to -3.0 per cent by 2025 will be rather challenging to achieve without an efficient consumption tax system such as GST.

“This is partly because Sales and Services Tax (SST) collection remains lower than the previous GST collection,” said the research team at Kenanga Investment Bank Bhd (Kenanga Research).

“The resulting shorfall in tax revenue poses structural issues as there is a need for the government to accelerate development spending and cover its increasing expenses, such as emoluments and the effort to increase salaries and wages among government servants,” it pointed out.

With that said, it maintained its fiscal deficit forecast of between -5.0 to -5.2 per cent of GDP in 2023, with slight improvement expected in 2024 at a range between -4.5 to -5.0 per cent.

Meanwhile, in an interview with Bernama, economists at Bank Muamalat Malaysia Bhd (Bank Muamalat) and Bank Islam Malaysia Bhd (Bank Islam) viewed that bringing back the GST will bolster government revenue but more clarity is needed for market players to adjust their investment decisions accordingly.

Bank Muamalat’s chief economist Mohd Afzanizam Abdul Rashid was quoted as saying that while it makes sense for the government to reconsider the GST as the tax regime would boost revenue collection, it is also important to make the system more transparent.

“Perhaps making it more transparent is the best way to deal with the shadow economy, as all businesses will need to register to claim the input tax credit,” he told Bernama.

Economy Minister Rafizi Ramli reportedly said that the government is open to reintroducing the GST as one of its strategies to widen the revenue base to achieve fiscal sustainability.

“We will be open and go through whatever way we can to achieve fiscal sustainability through a wider revenue base, whether it is going to be capital gains tax, GST, or any other form of direct or indirect taxes.

“I prefer to keep that strategy open and we will decide on a case-to-case and year-to-year basis,” Rafizi told reporters after the tabling of the 12MP midterm review by Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim in Parliament on Monday.