Call for broader SST cover­age

World Bank also sug­gests M’sia ex­pand per­sonal in­come taxes

The Star Malaysia - StarBiz - - Front Page - By GANESHWARA­N KANA ganeshwara­[email protected]­

PE­TAL­ING JAYA: A day be­fore Bud­get 2020, the World Bank has rec­om­mended that the gov­ern­ment broaden the cover­age of items un­der the sales and ser­vice tax (SST) and ex­pand per­sonal in­come taxes, among po­ten­tial mea­sures to di­ver­sify Malaysia’s sources of rev­enue.

The sug­gested mea­sures are ex­pected to re­build the coun­try’s fis­cal buf­fers, which the World Bank’s lead econ­o­mist for Malaysia, Richard Record, de­scribed as “lim­ited” at the mo­ment.

Suf­fi­cient fis­cal buf­fers would en­sure that Malaysia is well-po­si­tioned to weather the im­pact of any po­ten­tial eco­nomic growth de­te­ri­o­ra­tion, mov­ing for­ward.

Com­ment­ing on the SST, Record said the in­di­rect tax regime’s cover­age could be broad­ened by re­duc­ing the num­ber of items that are cur­rently zero-rated or not taxed un­der the SST.

“Per­haps, this is the right time to widen the SST cover­age to raise rev­enue when in­fla­tion is still low in or­der to mit­i­gate a se­vere in­crease in prices.

“An­other fac­tor that the gov­ern­ment should con­sider is the prod­ucts that the low-in­come pop­u­la­tion mostly uses. These items can re­main as zero-rated,” he told re­porters af­ter the launch of the World Bank’s October 2019 edi­tion of the Eco­nomic Up­date for East Asia and the Pa­cific.

The SST, which re­placed the goods and ser­vices tax (GST), was re-in­tro­duced in September 2018 as part of the Pakatan Hara­pan’s elec­toral pledge.

For­mer Cus­toms De­part­ment di­rec­tor-gen­eral Datuk Seri Subro­ma­niam Tho­lasy had pre­vi­ously said that a to­tal of 5,443 con­sumer items have been ex­empted from the SST in­di­rect tax regime.

In com­par­i­son, only 545 con­sumer items were ex­empted from the GST when it was in­tro­duced in 2015.

Record pointed out that Malaysia’s public-sec­tor rev­enue as a share of the gross do­mes­tic prod­uct (GDP) was be­low the lev­els seen in other up­per-mid­dle in­come coun­tries.

He added that Malaysia col­lected less rev­enue in terms of con­sump­tion tax in com­par­i­son to many other com­pa­ra­ble economies.

“Since Malaysia as­pires to be­come a high-in­come na­tion, the gov­ern­ment would need to col­lect more rev­enue over time and that re­flects the in­creas­ing de­mand of Malaysian ci­ti­zens for higher qual­ity public ser­vices, ed­u­ca­tion, health and oth­ers,” he said.

In its Eco­nomic Up­date for East Asia and the Pa­cific, the World Bank has main­tained its GDP growth fore­cast for Malaysia for the 2019-2021 pe­riod. The Malaysian econ­omy is ex­pected to ex­pand by 4.6% an­nu­ally in 2019, 2020 and 2021.

As for the fis­cal deficit, the World Bank pre­dicts that the gov­ern­ment may likely miss its ini­tial tar­get of 3% in 2020. How­ever, based on the bank’s fore­cast fig­ures, the gov­ern­ment’s fis­cal deficit as a share of GDP next year will be 3.1%, lower than the 3.4% es­ti­mated to be achieved in 2019.

Com­ment­ing on the coun­try’s eco­nomic prospects, the World Bank be­lieves that risks to Malaysia’s growth con­tinue to tilt to­wards the down­side.

“On the ex­ter­nal front, sharper than ex­pected slow­downs in ma­jor economies, un­re­solved trade ten­sions and a ma­tur­ing global tech­nol­ogy cy­cle could weigh on Malaysia’s ex­port de­mand in the near term.

“In­creased un­cer­tainty could also lead to more sub­dued busi­ness sen­ti­ment and a mod­er­a­tion in pri­vate sec­tor ac­tiv­ity. Mean­while, Malaysia’s com­par­a­tively high level of gov­ern­ment li­a­bil­i­ties will con­tinue to ex­ert con­straints on fis­cal space avail­able in the event of macroe­co­nomic shocks,” stated the bank.

As for the re­gion, growth in de­vel­op­ing East Asian and Pa­cific economies is ex­pected to slow from 6.3% in 2018 to 5.8% in 2019. Mean­while, the eco­nomic ex­pan­sion is fore­cast to mod­er­ate fur­ther to 5.7% and 5.6% in 2020 and 2021, re­spec­tively.

Ac­cord­ing to World Bank lead econ­o­mist for East Asia and the Pa­cific, An­drew Ma­son, the slow­down re­flects a broad-based de­cline in ex­port growth and man­u­fac­tur­ing ac­tiv­ity.

The height­ened trade ten­sions be­tween the United States and China are ex­pected to pose a long-term threat to re­gional growth.

While some coun­tries have hoped to ben­e­fit from a re­con­fig­u­ra­tion of the global trade land­scape, the in­flex­i­bil­ity of global value chains lim­its the up­side for coun­tries in the re­gion in the near term.

“While com­pa­nies are search­ing for ways to avoid tar­iffs, it will be dif­fi­cult for coun­tries in de­vel­op­ing East Asia and the Pa­cific to re­place China’s role in global value chains in the short term due to in­ad­e­quate in­fra­struc­ture and small scales of pro­duc­tion,” said Ma­son.

Eco­nomic up­date: (from left) World Bank econ­o­mist Shakira Teh Shar­i­fud­din, Record and com­mu­ni­ca­tions of­fi­cer Joshua Foong at the brief­ing on eco­nomic up­date for East Asia and the Pa­cific.

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