KUALA LUMPUR: There is a need for the government to look at other sources of tax revenue after Finance Minister Lim Guan Eng announced that the government is not planning to raise the corporate and individual tax rates.
The announcement has prompted the government to take a holistic approach to reform the country’s taxation system, leading to the formation of the Tax Reform Committee (TRC), which was tasked with broadening and diversifying the Federal Government’s tax revenue, and minimising tax leakages, without burdening the rakyat.
Putra Business School senior lecturer Dr Ahmed Razman Abdul Latiff said this include exploring new avenues such as the capital gain tax and inheritance tax, which will be focus more on the upper class.
“In 2018, it is estimated that 49.8 per cent of the government’s revenue will be contributed from income tax, where 30.2 per cent or RM72.47 billion will be coming from corporate tax and 13.4 per cent or RM32.23 billion from individual tax.
“With the government’s plan not to raise the corporate and individual tax rates, it is important for them to find and explore other source of revenue, considering the government’s expenses has been increasing every year,” he told NST Business today.
Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said the government is cognizant with the loss of revenue following the reintroduction of the Sales and Service Tax (SST) and this should be viewed positively as this will set the tone and the government is taking the necessary steps to ensure it can optimise revenue collection through other means.
He said the setting up of the TRC which comprise tax experts should be able to navigate government efforts towards optimising its tax collection.
He said more importantly, it is the constant communication to the general public that is important as the government currently has limited fiscal space and they need to conserve government spending especially operating expenditure in order to narrow its fiscal deficits.
Thus far, he said rating agencies have been supportive of the government's efforts by maintaining the prevailing sovereign rating at A3/A-.
“However, the government needs to be mindful of their finances by ensuring fiscal reforms will continue and the deficits trajectory will continue to decline albeit more gradually now,” he said.
MIDF Research chief economist Dr Kamaruddin Mohd Nor said the government is expected to look into the holistic approach in addressing its fiscal constraint.
“Originally, the Goods and Services Tax (GST) is expected to bring in about RM44 billion into the government’s coffer in 2018. With SST, we estimate the collection will be in the range of RM24 billion.
“This will be higher than the previous SST collection pre-GST of about RM17 billion. Strategies such as improving revenues collection, prudent spending and managing debts will help government's finances,” he said.