PETALING JAYA: The new taxes proposed in Budget 2019, such as tax on imported services, real property gains tax (RPGT) and departure levy, are seen to contribute insignificantly to the government’s revenue, according to Malaysian Rating Corp Bhd (MARC).
The new revenue-generating measures were meant to buffer government coffers against the drop in income following the abolishment of the goods and services tax.
The rating agency said in a report that it believes the new tax measures are not too robust and will not have an adverse impact on private consumption and business spending.
“Having said that, their contribution to overall revenue will not be too significant. This is reflected in the projected tax revenue growth of only 0.8% in 2019, which is well below the annual pace recorded between 2010 and 2018 (6% on a compound annual growth rate basis),” it said.
The overall revenue projection for 2019, however, is boosted by a one-off special dividend by Petroliam Nasional Bhd (Petronas) of RM30 billion, it added.
As contributions from the new taxes will take time to fully materialise, MARC said it expects the government to temporarily rely on oil-related income especially at a time when crude oil prices are relatively high.
Moving forward, it expects the government to continue seeking other avenues to broaden its revenue base.
Meanwhile, MARC said the notable increase in budget deficit projections is in line with its estimates of 3.5% to 3.8% for 2018 and 3.4% in 2019.
It opined that the deficit target of 3% of gross domestic product (GDP) is achievable by 2020 if average crude oil prices remain above US$60 per barrel and real GDP growth remains on its trajectory of 4.5%–5.5% in the next two years.
However, in the longer term, MARC said, the budget deficit trajectory will hinge on the continuing prudent management of operating expenditure (opex) and additional sustainable income streams that the government could introduce.
According to the Ministry of Finance’s Medium-Term Fiscal Framework, government revenue will continue to surpass opex, leaving an average positive balance of roughly RM4.3 billion a year.
“Hence, the budget deficit is anticipated to trend down to 2.8% in 2021. This target looks realistic in our view,” MARC added.
Apart from that, MARC said it expects that Malaysia’s medium-term financial liabilities will also hinge on the government’s decision to fulfill its election pledge to abolish tolls.
Meanwhile, other measures in Budget 2019, such as those for the capital market, will further assist funding needs and are positive for the overall economy. These include double tax deduction incentives for additional expenditure incurred on the issuance of sukuk under the principles of Ijarah and Wakalah, as well as that incurred on the issuance of retail bonds and sukuk which have been extended for three years.
Overall, MARC opined that Budget 2019 broadly meets the competing needs of fiscal consolidation while attempting to address the aspirations of the people.
Source: The Sun Daily