GEORGE TOWN, Jan 13 — Finance Minister Lim Guan Eng said the government is expected to cut its fiscal deficit to the targeted 3.2 per cent of gross domestic product (GDP) in 2020.
He said this was based on predictions of an improved economy this year.
“We have achieved the target fiscal deficit of 3.4 per cent in 2019 so we expect to achieve the fiscal deficit target this year too due to expected economic growth, we only need to prove that our economic growth is sustainable,” he said in a press conference after officiating a directors’ conference by the Inland Revenue Board (IRB) at St Giles Wembley Hotel here.
He expressed his confidence in the prospects of the country’s economy this year.
He said Malaysia’s economy is forecast to grow by 4.8 per cent this year, up marginally from last year’s 4.7 per cent.
“We targeted a fiscal deficit of 3.2 per cent this year instead of the forecast of 3.0 per cent previously because we are expecting better economic growth this year,” he said in his opening speech earlier.
He said Malaysia’s economy is expected to grow to RM1.607 trillion while the expected federal revenue is RM244.5 billion, which is 15 per cent of the GDP.
“From this sum, the government’s tax revenue is expected to increase to RM189.9 billion while non-tax revenue are expected to be about RM54.6 billion,” he said.
Lim also announced that the IRB successfully collected RM145.078 billion in taxes in 2019, just under the Finance Ministry’s target of RM147 billion.
“This collection is an increase of RM8.044 billion or by 5.87 per cent compared to the collection in 2018 of RM137.034 billion,” he said.
He said the voluntary tax disclosure programme had led to the successful collection of RM7.877 billion involving 286,428 tax payers and 663,296 cases.
He added that the 2019 tax collection was the highest ever recorded by IRB.
“As announced in Budget 2020, we have set the tax collection target for 2020 at RM154.676 billion, which is about RM8 billion higher than the 2019 target of RM147 billion,” he said.
Despite the country’s growing economy, Lim said the tax collections were not rising in tandem.
“According to the World Bank, in 2017, the size of the economy in Malaysia was RM1.353 trillion but the ratio of taxes against the GDP is only at 13.1 per cent,” he said.
He said this placed Malaysia below other countries such as Vietnam, Chile, Poland and South Korea which recorded 19 per cent, 17.4 per cent, 16.8 per cent and 15.4 per cent, respectively.
Lim said the factors that contributed to this included tax incentives, reduction of tax rates each year, tax evasion and low tax compliance.
He also touched on the local shadow economy and the need to manage and curtail this.
“The shadow economy is 21 per cent of the GDP or RM300 billion which consists of illegal activities and corruption,” he said.
He said all government agencies and not only the IRB must work together to reduce illegal activities that contribute to the shadow economy such as smuggling activities.
He said this was also one the reasons why the government is introducing cashless payments gradually to cut down the shadow economy.
“Even if we manage to reduce it by 25 per cent, it would be a significant sum,” he said.