This article first appeared in The Edge Malaysia Weekly on October 30, 2017 - November 5, 2017

TAX revenue, which is expected to contribute 80% to the federal government’s total revenue this year, is projected to grow 6.3% to RM191.57 billion in 2018 — marginally slower than the estimated 6.4% growth to RM180.2 billion this year.

Direct tax, which makes up slightly more than half of total tax revenue, is expected to increase at a slower rate of 6.7% to RM127.7 billion in 2018 compared with 9.2% this year.

The slower growth could be due to a smaller increase in individual income tax and petroleum income tax. Individual income tax is estimated to grow 7.1% to RM32.23 billion in 2018 compared with 9.2% this year.

Unlike a 29.9% surge to RM10.94 billion this year, petroleum income tax is estimated to grow only 4.6% to RM11.45 billion in 2018. This could be due to the Ministry of Finance maintaining the price of crude oil at US$50 per barrel in 2018.

Of the components of direct tax, only corporate income tax is expected to see higher growth in 2018 — 6.9% compared with 6.6% this year. Corporate income tax is estimated to increase to RM72.46 billion in 2018 from RM67.82 billion this year.

Indirect tax, which consists of the Goods and Services Tax (GST), excise duties, import duty and export duty, is forecast to grow 5.6% in 2018 compared with 1.3% this year.

GST, the largest contributor to indirect tax, is expected to see 5.5% growth to RM43.8 billion in 2018 from RM41.5 billion this year.

In 2018, excise duties are forecast to grow to RM12.33 billion, up 4.5% from the previous year’s RM11.81 billion. A large portion of excise duties is derived from motor vehicle sales. This year, excise duties are expected to rebound 0.9% to RM11.81 billion on the forecast of higher motor vehicle sales. This follows a 1.6% contraction last year.

Both import and export duty will see smaller growth in 2018 at 0.5% to RM3.02 billion and 14.6% to RM1.4 billion respectively. This year, import duty grew 3.5% to RM3.01 billion while export duty rose a substantial 24.7% to RM1.22 billion.

Moving forward, the government says it will continue to improve revenue from tax collection by enhancing compliance and administration. It has also established the Collection Intelligence Arrangement, comprising the Inland Revenue Board, Royal Malaysian Customs Department and the Companies Commission of Malaysia, in an effort to reduce tax evasion, avoidance and leakage.

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