THE federal government expects to collect RM21.72 billion from the Good and Services Tax (GST), or 9.2% of its total estimated revenue in 2015, following the implementation of the tax on April 1 next year.
With this, tax collection from sales and services is forecast to drop significantly to RM2.73 billion (2014: RM10.99 billion) and RM1.87 billion (2014: RM 6.78 billion) respectively in 2015, according to the Economic Report 2014/2015. (The estimates exclude any potential tax measures in 2015.)
The GST is one of the fiscal reform initiatives introduced by the government to replace the sales tax and service tax.
The report says tax revenue is expected to increase 6.8% in 2015 mainly from higher collection of corporate income tax and GST. Meanwhile, individual income tax collection will be marginally lower due to a reduction in individual income tax rates by one to three percentage points in line with efforts to ease the burden of the rakyat during the GST implementation period.
Revenue from the petroleum income tax is estimated to decline to RM25.6 billion (or 10% of total revenue) in 2015 from RM28.28 billion (12.6% of total revenue) in 2014.
“The government has prudently reduced its dependency on oil-related revenue, from 41.3% in 2009 to 31.2% in 2013, and this is expected to decline further in the coming years. Hence, the implementation of a new tax structure, namely GST, will allow the government to streamline and broaden the tax base,” the report says.
With the fiscal consolidation efforts, the federal government is expected to register a lower deficit of RM37.3 billion, or 3.5% of Gross Domestic Product (GDP), in 2014 compared with RM38.6 billion or 3.9% in 2013.
“This will be accomplished by a reduction of 1.3 percentage points in total spending as a share of GDP, significantly larger than the reduction of 0.4 percentage point in the deficit,” the report says.
In 2015, the government’s total revenue is projected to grow more than total expenditure, registering RM235.2 billion or 20% of GDP compared with RM225.09 billion (20.9% of GDP) in 2014.
Despite a declining trend in oil-related revenue, non-oil revenue is expected to grow 9.3%, higher than the rate of nominal GDP growth of 9%. This forecast has taken into account measures to broaden the tax revenue base with GST implementation, the report says.
Total federal government expenditure in 2015 is budgeted to grow moderately to RM271.9 billion (2014: RM263.3 billion), of which RM223.4 billion is for operating expenditure and the balance of RM48.5 billion for development expenditure.
The bulk of the operating expenditure will be spent on emoluments (29.4%), followed by supplies and services (17.1%), subsidies (16.9%) and debt service charges (10.9%).
As for development expenditure, a larger share of RM29.3 billion will be allocated to the economic sector for the five growth corridors, improving public transport, infrastructure maintenance and rural development programmes, among others.
Meanwhile, to improve the quality of life of the people, a total of RM12.6 billion (2014: RM10.39 billion) will be allocated to projects and programmes under the social sector, especially for healthcare and affordable housing, and human capital development.
The expenditure for the housing subsector jumps 148.3% to RM2.29 billion in 2015 from RM924 million in 2014, followed by an increase of 14.9% to RM5.58 billion for education and training.
The allocation for housing will be used to build quality and affordable houses as well as to rehabilitate and maintain public houses.
As for defence and internal security, RM4.9 billion will be allocated in 2015 to upgrade the capabilities and capacity of the armed forces.
As for the general administration sector, RM1.7 billion will be provided to upgrade government facilities as well as continuously enhance public service delivery, the report says.
“The government will ensure debt is capped below 55% of GDP while ensuring revenue will be sufficient to meet operating expenditure,” it says.
This article first appeared in The Edge Malaysia Weekly, on October 13 - 19, 2014.