With the Sales Tax Looming, Is Malaysia’s Budget Goals Still Possible?

With the Sales Tax Looming, Is Malaysia’s Budget Goals Still Possible?

 

It Is, But Experts Warn That There Will Still Be Challenges

What is the future looking like for Malaysia with the Sales and Services Tax (SST) on the horizon? While the government may be unlikely to miss its targeted deficit cuts, removing the GST does mean there is going to be some reduction in its revenue which will be a cause for concern in the following years.

Economist experts are warning however, that without the GST, Malaysia will be more vulnerable towards oil price volatility unless something is done about this revenue hole. While the economists and the experts still agree that the country could still bring about its 2.8 per cent budget deficit this year through the higher Petronas dividends to the government if the oil prices remain above US$70 per barrel, without the GST the revenue hole still needs to be plugged.

However, while the Budget 2018 was drawn up with a US$52 per barrel margin, there is no guarantee that oil prices are going to remain at that price next year and beyond that. External factors could also contribute to the fluctuate in prices, such as the global economic growth for example.

SST is currently projected to bring about RM21 billion in revenue for the government, which is still less than half of what GST streams brought in last year. In 2017, the GST raked in RM44 billion in federal revenue which helped to cushion the dip in oil prices experienced in recent years. For a country like Malaysia who was once heavily dependent on the income derived from petroleum, that revenue helped.

There has been concern as to whether the government will be able to find enough revenue in the coming years which will help to drive the country’s economic growth by reverting to the SST system which will generate far less revenue than the GST did.

According to Sunway University Business School’s Professor Yeah Kim Leng, the Malaysian government will need to reduce its spending by at least RM15 billion to RM20 billion annually from next year onwards if it hoped to achieve a declining budget deficit. Relying on the volatile oil revenue for government budgeting was not a viable option in this case, and the government will need to be leaner and increase their spending efficiency by eliminating unnecessary wastage.

The previous Najib administrated targeted a zero-budget deficit by the year 2020, but was later revised to 0.6 per cent due to the slump in oil prices in the recent years.

If the government were to spend less, it would still be able to achieve growth, so long as Putrajaya continued to allow private sectors to be the main driver of the economy. Since an SST expansion or GST revival is unlikely within the next few years, greater income equality must be made possible so that the earning levels of the poor are given a raise which will allow them to cope should the price of oil increase once more.