Gradual process to consolidate fiscal deficit

PETALING JAYA: The government will not impose new permanent taxes as well as broad-based taxes until Malaysia’s economic recovery is ascertained.

Following a dialogue with Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz, Maybank IB Research disclosed in its post- Budget 2022 note that the government is looking at ways to consolidate the budget deficit and create room for fiscal space in the future.

“The process will be gradual and there will be no permanent new and broad-based taxes until economic recovery is assured and entrenched,” the research house said.

In its Fiscal Outlook 2022 report, it noted that the budget deficit to gross domestic product (GDP) ratio will be below 5% from 2023 onwards en-route to the 12th Malaysia Plan target of 3% to 3.5% by 2025.

For this to happen, Maybank IB Research said the medium-term revenue strategy, which would be unveiled next year, may need one of the tax policy considerations to shift towards indirect taxation from direct taxation for sustainable revenue generation.

“In addition, as part of the medium-term measures to rationalise expenditure, the government is looking to review the current blanket fuel price subsidy that is enjoyed by all regardless of income level to a more targeted system,” it said.

On the other hand, the research house said that Tengku Zafrul stressed that the prosperity tax, announced in Budget 2022 is a one-off corporate tax on companies, noting that it only affects 234 companies out of the 1.4 million in total.

It also explained that the increase in contract notes’ stamp duty rate to 0.15% from 0.10% as well as the abolition of the RM200 limit on contract notes’ stamp duty is the “substitute” to capital gains tax.

Moreover, Maybank IB Research said residents’ foreign-sourced income would be subjected to the same tax rates as the corporate and individual income taxes.

“The definition of foreign-sourced incomes include dividends and tax credit mechanism will be applied to avoid double taxation,” it clarified.

On the other hand, Maybank IB Research said that the government anticipates that domestic debt will fall to 63.4% by end-2022 from the current 65%.

The government also estimated that domestic debt would decline between 62% and 63% in 2023 before falling to around 60% in 2024.

“The Finance Minister has the power under existing acts on government debt to gazette the debt ceiling at level deems necessary without tabling at the Parliament for debate and voting,” noted the research house.

Notably, there has been two rounds of increases in debt ceiling to 60% from 55% in August last year and further to 65% in Oct this year.

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