KUALA LUMPUR, Sept 28 — The Malaysian government could possibly still introduce new taxes in the country, in order to have sufficient funds for the historic RM400 billion allocation for government spending to develop the nation over five years under the 12th Malaysia Plan (2021-2025), economists have said.
This is because the government has also planned for the annual budget deficit to be lower by the time the 12th Malaysia Plan ends in 2025, which means that the government has to collect more revenue to enable the meeting of the targeted deficit while still being able to earmark RM400 billion for the five-year period.
Yesterday, Prime Minister Datuk Seri Ismail Sabri Yaakob tabled in the Dewan Rakyat the long-anticipated 12th Malaysia Plan, aimed at achieving the objective of Keluarga Malaysia — Makmur, Inklusif, Mampan or prosperity, inclusivity and sustainability for the “Malaysia Family”.
Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed yesterday said this RM400 billion allocation for development expenditure under the 12MP is the highest-ever amount, as compared to the country’s previous five-year plans.
New taxes in the future maybe?
Bank Islam chief economist Mohd Afzanizam Abdul Rashid told Malay Mail that his view was that the sizeable allocation for development expenditure (DE) would be positive for Malaysia’s GDP growth or economic growth, “as the impact, if it’s implemented in a timely manner, will have immediate multiplier effect to the economy”.
However, he noted that Malaysia’s fiscal deficit target of between 3.0 to 3.5 per cent by 2025 is lower when compared to the expected fiscal deficit of more than six per cent of the GDP for 2021, which he suggested meant there would be a need to increase government revenue.
“So lower deficits in 2025 and higher DE seems to indicate that revenue has to go up,” he explained when contacted yesterday.
“Perhaps there will be new taxes to be introduced along the way especially when the economic recovery becomes more sustainable,” he added.
A fiscal deficit occurs when the government spends more than it collects, or when government expenditure exceeds the government revenue. Collecting taxes is one of the methods for the government to generate revenue or income.
In Malaysia, the government’s revenue comes from non-tax revenue (such as licences, permits and investment income), as well as from tax revenue that is further divided to direct tax (such as income tax from companies and individuals, and petroleum income tax) and indirect tax (such as the sales and services tax, excise duties, import duties and export duties).
Mohd Afzanizam also noted the focus on technology, particularly 4G and 5G networks in the prime minister’s speech yesterday on the 12MP, as well as the expected increase in research and development (R&D) spending from one per cent of the GDP in 2020 to 2.5 per cent of the GDP in 2025.
“In that sense, the government has remained committed to ensure that the economy will continue to grow with quality, one that will leverage on technology. This would lead to demand for highly-skilled labour.
“In a nutshell, the 12MP has covered a lot of grounds. With timely implementation, it could accelerate the economic recovery process,” he added.
Could Budget 2022 include new taxes?
RHB Research senior economist Ahmad Nazmi Idrus said the “exceptionally high” targeted DE of RM400 billion for the next five years came as a surprise.
He noted that the RM400 billion averages to about RM83 billion annually for 2022 to 2025 (with 2021 targeted to be RM68.2 billion), which he said is higher than the actual total expenditure under the 11th Malaysia Plan of RM249 billion (which averaged out to be RM50 billion annually over a five-year period). Out of the RM400 billion, half of it would be channelled under the 12MP to six less-developed states (Sabah, Sarawak, Kelantan, Terengganu, Kedah and Perlis) with a focus on infrastructure and poverty eradication programmes.
He sees continued implementation risks for development expenditure for much of 2022, with 2023 being the earliest where an improvement would be expected for this category of government spending.
Ahmad Nazmi too touched on the government’s goal of fiscal consolidation, where it is aiming at improving the current fiscal deficit target of 6.5 to 7.0 per cent for 2021 to a projected 3.0 to 3.5 per cent of the GDP by 2025.
“In our view, the government’s goal for fiscal consolidation seems reasonable assuming no other negative external shock,” he wrote in a research note made available to Malay Mail.
He said that there is still potential for the government to roll out other taxes, even as the 12MP did not make mention of such new taxes.
“Of course, this assumes that fiscal environment is status quo. The government’s plan to reintroduce the Goods & Services (GST) tax is nowhere mentioned in the 12MP.
“Similarly, the capital gains tax and the windfall tax mulled by the government are also missing. Nevertheless, we did not rule this factor out. There could still be surprises in the Budget 2022 to be tabled in end-October,” he said.
The GST was first introduced in Malaysia on April 1, 2015, but was zero-rated for three months from June 2018 and ultimately scrapped. The GST was replaced by the Sales and Services Tax (SST) regime that was revived on September 1, 2018 and continues to be in place until today.
Budget 2022 — which will outline how much the government plans to spend and how much it expects to collect in revenue — will be tabled in the Dewan Rakyat on October 29.
Previously on August 31, the Finance Ministry in its first-ever pre-Budget statement had already noted that the tax collection from taxpayers has been lower than expected so far in 2021, and had listed its strategies to boost government coffers and reduce leakages in tax that should have been paid to the government.
The pre-Budget statement mainly focused on methods that could be used to improve tax compliance which would then lead to higher tax collected, but did not say that there would be new taxes introduced.
As a whole, RHB’s Ahmad Nazmi viewed the 12MP as being a fine balance between finding new ways to spur economic growth while keeping government finances in check at the same time after battling one of the country’s biggest economic shocks.
He noted that the focus of the 12MP was more on expediting the 4th industrial revolution, enhancing the digital economy, increasing the economic contribution of small and medium entreprises (SMEs) and placing a greater focus on renewable energy.
“Over the long-term, growth prospects could improve given the higher allocation for development expenditure, which could serve as a catalyst for stronger investment growth,” he also said.
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