Friday 29 Mar 2024
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Prime Minister Datuk Seri Anwar Ibrahim has repeatedly said that the revised Budget 2023's proposals will not introduce new broad-based consumption taxes such as the goods and services tax (GST) to burden the rakyat. This assurance has surely kept the people on the street calm even as they face rising inflation, increasing interest rates and disruptions caused by global events.  

If Malaysia is to rely on existing tax systems to drive national progress, then the more curious minds would be pondering how the government will attempt to manage this issue sustainably. Malaysia’s total debt and liabilities are already at more than 80% of the country’s gross domestic product, breaching RM1.5 trillion. Hence, the PM was correct to say that radical measures would be called for to prevent this total from ballooning further.

Logic dictates that there would be two main avenues to achieve this: one is to increase the government’s revenue, while the other is to reduce expenditures. The latter involves a stricter cost discipline, which was proposed in the previous version of the Budget 2023 in October 2022 — an approach that is likely to be reiterated in the revised Budget. In fact, we can already observe this practice in the government’s active reviews to rationalise subsidies on a more targeted approach.

As for increasing revenue, there are some possible avenues the government can consider. For instance, in place of the GST, a more palatable alternative would be to broaden the scope of the existing sales and service tax (SST) regime. An example can be seen in the recent introduction of the sales tax on low value goods, and the proposed service tax on goods delivery services. The government could perhaps look into similar measures to increase the coffers, while also being cognisant of cascading tax — that it should only be taxed once. Positive elements of the GST, such as the self-policing input tax credit or zero rate for essential goods and services, could also be considered.

A major concern with any tweaks to the tax system is the impact on prices. There is currently the Price Control and Anti-Profiteering Regulations administered by the Ministry of Domestic Trade and Cost of Living to address concerns about businesses potentially making unreasonably high profits. This regulation, which has been in place since 2015, could be reviewed and enhanced to ensure it remains effective and relevant due to changes in the tax regime. The penalty regime could also be relooked to take account of serious offenders.

Recently, the Royal Malaysian Customs Department (RMCD) announced that the revenue collection from indirect taxes for 2022 was RM53.54 billion, which was 25% more than the revenue in 2021. Apart from better collection from taxpayers due to economic growth in 2022, it also can be attributed to the introduction of the one-off Special Voluntary Disclosure and Amnesty Programme by the RMCD, which encouraged taxpayers to voluntarily disclose genuine errors with certain incentives accorded. This programme was beneficial for both taxpayers and the RMCD, which hopefully will be considered and extended permanently in the future.

Unfortunately, the RMCD also shared that there were tax leakages arising from defaulters. This was further exacerbated by the prevalence of the shadow economy, which caused more revenue loss to the government. The various efforts introduced by the RMCD and relevant agencies in Budget 2021 to curtail the illicit tobacco trade have managed to bring down the magnitude of this trade. However, there is still room for improvement, which calls for more collaboration and awareness among the stakeholders to address this issue, which had cost the government considerably in revenue.

Another revenue-generating pipeline is the anticipated carbon tax, which has been making inroads in many other countries. This is a tax that is generally charged on emitters for each ton of greenhouse gas (GHG) emissions. The purpose is so that higher prices for carbon-emitting goods will encourage businesses and consumers to switch to more environmentally friendly alternatives. With environmental, social and governance (ESG) matters taking the centre stage today, introducing this tax can not only generate revenue but, more importantly, address global climate challenges. For example, Singapore’s carbon tax rate is set at S$5 (RM16.54) per tonne until 2023, and applied to facilities that directly emit at least 25,000 tCO2e of GHG emissions per year. Following the passing of its Carbon Pricing (Amendment) Bill, Singapore’s carbon tax will increase to S$25 per tonne for GHG emissions in 2024 and 2025, and again be raised to S$45 per tonne in 2026 and beyond. It is expected that Singapore will collect S$1 billion in carbon tax in the first five years. As a country blessed with natural resources, Malaysia should also take the lead in taking measures to protect its green assets for the future.

Budget 2023 will be an acid test for the new unity government, as the rakyat pin their collective hopes on the country’s leaders to steer the country towards a more solid footing. It is an unenviable task given the current economic situation, which only means that support and participation from the business community would be required if the revised Budget 2023 is truly one with the welfare of the rakyat at its core.

Ng Sue Lynn is the head of indirect tax at KPMG in Malaysia.

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