Will public transport agenda hit tax revenue?

KUALA LUMPUR: Public transportation has long been at the crux of the government’s agenda to improve its people’s livelihoods. With rising traffic congestion and frequent toll charges affecting productivity and eating into people’s incomes, the government has come under pressure to address such issues.

Various initiatives have been put in place, including the recently launched National Transport Policy 2019-2030, aimed primarily at strengthening the infrastructure of public transport and making it the preferred option among the people.

While the narrative to push for greater public transport usage has been firmly rooted in government policy, the question arises as to how such investments into providing greater access to these facilities will benefit the government’s coffers.

In particular, will pushing for the public transport agenda, with the aim of reducing private vehicles on the road, have any impact on the government’s tax collection?

According to the finance ministry’s Economic Report 2019/20, tax collection from commodities continues to be on an upward trend, with motor vehicles, trailers and the semi-trailers sector contributing the most.

The sector generated RM13.16 billion in tax revenue in 2015, which was 24.9% of the total RM52.9 billion collected from commodities.

Though tax collection for 2020 is expected to be higher, would there be any impact to this should there be a drop in the tax portion from vehicles resulting from less cars on the road? Economists contacted by The Edge Financial Daily had differing opinions on the matter.

Sunway University Business School economics professor Dr Yeah Kim Leng dismissed the concern, and called for a better balance of oil consumption.

“Malaysia is currently a net importer of oil. It means we consume more than we export. If we can reduce consumption of oil or balance it out to exports, then this will be more positive on government revenue, as government can then focus on boosting exports,” he said.

He disagreed that there was a need to be concerned with taxes from motor vehicles potentially dropping with rising public transport usage. A drop in these taxes would not significantly offset gains in terms of government revenue, he said.

“Car sales may drop in the future, but this would not have a material impact. It would slow down growth [of car sales] but would not be so impactful on government revenue.

“If you look at net oil importer countries such as Singapore, they emphasise on efficient public transport systems and still do well,” he pointed out.

Yeah emphasised on the need to reduce dependence on oil consumption, which would be more sustainable for government revenue and would make the country less vulnerable to oil shocks in the future.

MIDF Research head of research Mohd Redza Abdul Rahman concurred with this perspective, and said the issue should be looked at holistically.

“Less usage of petrol can be looked at positively considering the subsidy portion for fuel. With less usage, more can be obtained by the government from petroleum revenues (from what we produced) or less imports (for local usage),” he said.

Institute for Democracy and Economic Affairs research manager Lau Zheng Zhou said public policies have to be consistent to send the right signals to induce behavioral change among the people.

“Right now, our policy on transportation is rather inconsistent as on one hand we are acquiring tollways in an effort to reduce toll charges, continuing with petrol subsidy, and potentially to increase sales for national cars (reduce cost of road usage), while on the other we are pushing to increase modal share for rail. So, do we want to keep people on or off the road?” he said.

Lau noted that Malaysia has one of the highest car ownership rates in the region. With this, along with a lower cost structure on imported cars and autoparts due to the Asean free trade agreements, demand for cars will likely increase.

“So, government will still generate healthy tax revenue from car sales on the back of strong demand for passenger vehicles.

“The bigger problem is, the government’s investment and subsidy on public transportation may not generate the intended result of moving more people off road, given low ridership of around 20%. This sub-optimal use of public transportation is tantamount to waste of public funds. So, the government’s policy must be consistent in a way that discourages road usage, and get people to switch to rail,” he said.

Lau went on to say that if public transportation ridership can increase (because of falling road usage), the indirect benefit on productivity and reduced carbon emission may constitute larger socio-economic gains.

Economist professor Dr Jomo Kwame Sundaram also recently expressed his views on this matter, urging the government to subsidise public transportation instead of giving fuel subsidies as this would help the masses reliant on the former.

“Who uses more fuel? Car owners. The bottom 20% [income group] has no cars, not even motorcycles. They depend on public transport,” Jomo told the media, adding that the government should think about subsidising public transportation for the bottom 70% and think less about the top 30%.

According to Penang Institute executive director Datuk Dr Ooi Kee Beng, treating transport issues as a serious fiscal problem in itself is to take a narrow view of what an efficient and forward-looking national budget can accomplish in terms of urban livability.

“Surely, a government whose income depends to a critical level on taxing travel is thinking of itself as highway patrolmen and not nation builders whose job is to raise the quality of life of its citizens.

“A developed society is one where the wealthy take public transport. One must also consider the loss of lives on the roads due to congestion, the clash between different forms of transport which ends in motorcyclists, often used by the poorer classes, being [the] victims,” he said.

Source: TheEdgeMarkets