KUALA LUMPUR – Malaysia cannot afford to carry on with its current tax model, which records low annual revenue in relation to the gross domestic product (GDP), Deputy Finance Minister Datuk Seri Ahmad Maslan told the Dewan Rakyat.
He noted that last year, while tax revenue was a major contributor to the overall revenue collection at RM208.8 billion out of RM294.4 billion or 70.9%, it only represented 11.7% of the GDP.
This year, tax revenue is expected to remain at a low of 11.6% of the GDP, Ahmad said, adding that the average between 2018 and 2023 will be 11.55%.
This, he noted, is considerably less than that of the rates recorded by many other nations, including the United Kingdom (32.8%), Japan (31.4%), and countries in the Organisation for Economic Co-operation and Development (over 30%).
“I admit, our (tax) model is not sustainable. In the end, we cannot carry on with it.” he said today.
Ahmad said this was why the government has decided to introduce targeted subsidies for certain goods, to ensure the country’s debt does not continue to balloon.
He noted that for a start, the administration has already implemented targeted electricity subsidies beginning January this year, which is expected to result in an additional revenue of RM4.1 billion.
A similar model will be extended for the purchase of diesel, with its mechanism to be finalised by next quarter, he added.
"We also plan to expand our tax revenue base, improve and review the tax structure and legislations, and provide tax incentives," he said, adding that a medium-term strategy over the period of three years has also been identified.
In addition, Ahmad pointed out that the government has also announced plans to introduce a Fiscal Responsibility Act by this year, which will ensure that the national debt does not go over 65% of the GDP and debt servicing must be less than 15% of revenue.
“(The act will also ensure that) operating expenditure must be solely from the country’s revenue and not from debt, while foreign debt will be capped at RM35 billion.”
Ahmad was responding to questions from Datuk Seri Johari Abdul Ghani (Titiwangsa-BN) on the country’s tax revenue to the GDP and whether the current model is sustainable.
“When I calculated the interest we have to pay for our debts every year, in addition to the huge subsidies, I’m afraid the existing model, if not reviewed, will lead to an unbridled debt level.”
He also pointed out that Malaysia’s tax revenue to GDP is also much lower than many countries in the region, including Vietnam (22.7%), Thailand (14.1%), Philippines (14%) and Singapore (13%). – The Vibes, March 30, 2023
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