11MP shows Putrajaya relying more on taxes after oil slump, think tank says

The think tank lauded the government for diversifying its income away from oil and gas, but suggested the need to improve tax competitiveness compared to other countries. — Reuters pic
The think tank lauded the government for diversifying its income away from oil and gas, but suggested the need to improve tax competitiveness compared to other countries. — Reuters pic

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KUALA LUMPUR, May 26 — Putrajaya looks likely to rely more and more on tax in the next five years to cover a fall in oil and gas revenue, think tank Penang Institute said today in its analysis of the 11th Malaysia Plan (11MP).

The think tank also predicted that Putrajaya will either increase the 6 per cent rate of the Goods and Services Tax (GST), or increase taxable items to cover a projected 6.4 per cent annual increase of indirect tax income from RM48.1 billion to RM65.6 billion.

“As the indirect tax growth rate is above the 5 to 6 per cent projected GDP (gross domestic product) growth, this implies that GST rate might be increased, or the scope of chargeable goods and services will be expanded, perhaps after the next general elections,” it said in a statement.

Despite expecting a fall in oil and gas revenue to 15.5 per cent of the total government revenue under the 11MP, Putrajaya still expects the total government revenue to rise by 7.9 per cent due to a 10.7 per cent hike in direct tax revenue, it said.

Penang Institute said the revenue from direct tax will increase to 62.9 per cent of government revenue in 2020 compared to 49.5 per cent back in 2010.

“As direct tax consists of corporation tax and individual income tax, this might imply more tax payers, more companies and individuals achieving higher income and thus contribute more tax; or the direct tax rates are increased,” the think tank said.

It lauded the government for diversifying its income away from oil and gas, but suggested the need to improve tax competitiveness compared to other countries.

Penang Institute also said economic competitiveness can only be boosted by reducing corruption and red tape, as well as the significant brain drain which was not addressed much in 11MP.

Prime Minister Datuk Seri Najib Razak, who is also the finance minister, tabled the five-year government plan in Parliament last week that aims at leading the Southeast Asian nation toward its goal of becoming a fully developed economy by 2020.

The plan comes at a time when Malaysia is navigating through a tricky economic environment of slumping energy prices that are threatening to cut the nation’s oil and gas revenues.

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