KUALA LUMPUR (Nov 6): The government’s revenue is projected to drop by 14% to RM227.3 billion in 2020, compared with RM264.4 billion in 2019, as a result of lower tax collection, according to the Ministry of Finance (MoF) in its Fiscal Outlook 2021 report.

In 2021, however, the government’s revenue is envisaged to turn around by 4.2% to RM236.9 billion or 15.1% of GDP on the back of improving economic growth and business prospects.

The higher revenue is expected to be largely attributed to better tax revenue collection, which is estimated to increase by 13.8% to RM174.4 billion. Direct tax and indirect tax are also expected to rebound by 14.6% and 11.4% to RM131.9 billion and RM42.5 billion respectively as the domestic economy returns to the growth path. 

Back to 2020, direct tax, accounting for 50.6% of total public revenue, is expected to come in at RM115.1 billion, a decrease of 14.6% from RM134.7 billion in 2019, primarily due to weaker economic activity affecting businesses and individuals’ incomes as well as lower crude oil price assumptions, the report said.

Indirect tax, which constitutes 16.8% of total revenue, is estimated to fall by 19.4% to RM38.1 billion, compared with the original estimate of RM47.3 billion, with all components expected to decline.

The sales and service tax (SST) is expected to be contribute less at RM24.5 billion against RM27.7 billion in 2019 with sales tax collection projected to reduce by 21.4% to RM12.1 billion. This is also in line with the government’s initiative to provide tax exemption for purchases of locally assembled and fully imported passenger cars under the National Economic Recovery Plan (Penjana) package.

The report said tax collection would continue to be a major contributor to the government’s revenue with an estimated collection of RM153.3 billion or 67.4% of total revenue, albeit lower than the previous five-year average of 75.8%.

Consequently, total revenue as a percentage of GDP is expected to be lower at 15.8%, of which tax revenue constitutes 10.6%, while non-tax revenue represents 5.2%.

Meanwhile, non-tax revenue is envisaged to register RM74 billion, lower than RM83.8 billion in 2019, largely contributed by higher dividends from Petroliam Nasional Bhd (Petronas) amounting to RM34 billion, of which RM10 billion is a special payment mainly from its divestment exercise in 2019.

Whereas petroleum-related revenue is forecasted to decline sharply by 40.3% to RM50 billion in 2020, from RM83.8 billion last year, due to the exclusion of a special dividend for tax refunds as well as reduction in petroleum income tax and royalty amounting to RM8.5 billion and RM4.2 billion respectively — based on lower global crude oil prices.

For more stories on the Economic Report 2020/2021, click here.