KUALA LUMPUR (Oct 29): Malaysia's RM332.1 billion Budget 2022, the nation's largest budget on record, is set to depend on an uptick in growth without a requisite marked uptick in revenue, said economist Wellian Wiranto.

The OCBC Bank analyst said that at 6% of gross domestic product (GDP), the deficit is higher than the 5%-5.5% he had in mind, signalling the government's keenness in maximising whatever fiscal space it has on hand.

"Without a requisite marked uptick in revenue — still no mention of goods and services tax, for one — the deficit is left wide," he added in a statement.

According to Wiranto, the government is calculating that a rapid uptick in growth — projected to be 5.5%-6.5% — would help make its numbers work.

"That was the strategy that it depended on last year, only to be upended by the pandemic. Hopefully, the same scenario would not recur," he said.

In terms of spending, Wiranto noted that the focus is predominantly on development expenditure, in line with the major thrust laid out in the five-year 12th Malaysia Plan.

"At RM75.6 billion, the projected amount for 2022 marks a significant uptick from RM62 billion in 2021, although a tad short of the RM80 billion that we thought would showcase its seriousness about the medium-term plan," he said.

The revenue raising initiatives are trying to "thread the needle" of pursuing a still-expansionary expenditure outlay while keeping the deficit broadly in check, the analyst said.

The form of a windfall tax on corporations under the Cukai Makmur (Prosperous Tax) initiative — taxable income of more than RM100 million in 2022 will be taxed at a higher rate of 33% rather than the prevailing 24% corporate tax — is slated to be a one-off initiative.

Wiranto said this is due to the high expenditure requirement of the government given the pandemic situation, but noted that it would "come as quite a bit of a bite for some companies".

Additionally, he said that the government has introduced a tax on income from overseas sources with effect from Jan 1, 2022.

"There were little details on how such a global taxation system will be carried out, including treatment of double taxation and how the government intends to pursue those who are not compliant, however," he added.

Wiranto noted that these initiatives have to be viewed in the broader context of how the government is trying to balance pursuing a still-expansionary outlay while keeping the deficit broadly in check.

"As the finance minister admitted as much in his budget speech, the government has been forced to depend on non-tax revenues and to raise its debt ceiling to leave space for stimulus packages amid the pandemic challenges.

"It does not help too that Malaysia's tax-to-GDP ratio has been among the lowest in the region," he added.

However, Wiranto noted that these new initiatives should go some ways in giving the government some uptick in tax revenues.

See more Budget 2022 highlights here.