MoF undertaking study to widen revenue base, including reinstating GST

KUALA LUMPUR (March 16): The Ministry of Finance (MoF) is currently undertaking a study on how to widen Malaysia’s revenue base, which includes reinstating the goods and services tax (GST) as well as reviewing tax incentive packages to further consolidate them and make them more targeted and strategic.

Deputy secretary-general Zakiah Jaafar said the ministry was about to embark on some major fiscal reforms to strengthen the country’s revenue capacity when the pandemic broke out, followed by the ensuing crisis.

“So now, we are slightly distracted in maintaining a countercyclical stance until recovery is fully entrenched despite limited fiscal room.

“We are certainly studying new tax reforms, which include reviewing the existing tax structure and the possibility of new taxes to be imposed.

“But rest assured, we are very mindful of their impact and the timing. If anything, the government would wait until the economy has fully stabilised and activities are normalised before making any major changes,” she said in a panel discussion at the launch of the World Bank’s flagship report titled “Aiming High — Navigating the Next Stage of Malaysia’s Development” today.

The country currently collects only 17% of gross domestic product (GDP) in tax revenues, which is quite low relative to high-income nations.

During this pandemic, she said extra fiscal space was created by establishing the Covid-19 Fund under the Temporary Measures for Government Financing Act, which allows for larger expenditure through borrowings in a limited period.

“Hence, the government has additional flexibility to borrow in the event further support is needed for the economy despite the lack of revenue.

“But going forward, we recognise that the fiscal space used in this pandemic will need to be rebuilt,” she said.

She noted that Malaysia had a good growth track record and rebounded within a year from each of the five crises it experienced in the last five decades, and it is confident of repeating history.

“We also have a good fiscal track record. We have been on a concerted consolidation path for the last decade or so, but have to sidetrack to manage the current crisis.

“Once the economy recovers, we will work towards getting back to consolidating our fiscal position,” she added.

Source: TheEdgeMarkets