There are quite a few expectations for Budget 2019, which will be announced on 2 November 2019 in the Parliament. This is the first budget of the new Pakatan Harapan government, following 61 years of Barisan Nasional’s rule.
With this budget, financial experts are speculating the likelihood of new taxes and hikes to existing taxes as well. This can be attributed to the government’s commitment to deal with Malaysia’s rising debt situation.
Expanding the Tax Base
A shortfall of about RM20 billion to RM23 billion is expected ever since the Malaysian government went back to the Sales and Service Tax (SST) after the abolition of the GST system. However, this shortfall can be made up with contributions from Petronas because of the increase in oil prices, based on speculations from various financial experts.
In the previous budget, the average price of oil stood at USD52 for each barrel. Even though, the current average price of oil stands at USD80, the government is considering USD70 per barrel to shift budget allocations. The dividends from Petronas have also been higher. This could act as a buffer and make up for the annual shortfall.
According to finance experts, the government cannot be heavily reliant on oil-related revenue, whether it’s from Petronas or other government-linked companies.
This is why the tax base is expected to incorporate new forms of taxes like the sugar and digital tax. Sugar tax has been introduced in South Africa, United Kingdom, Thailand, the Philippines, and Ireland. In fact, the Ireland Department of Finance has predicted that this tax should add about €40 million to the revenue.
The Introduction of Sugar and Digital Tax
The addition of sugar tax is one way the government can tackle the consumption of unhealthy food. For instance, producers and importers of soft drinks that contain sugar have to pay a levy in the UK. The Thailand government has also increased the taxes on high-sugar content soft drinks.
One of the reasons the Malaysian government may introduce the sugar tax is to combat the rise of diabetes in the country. According to reports, Malaysia has the highest rate of diabetes in Asia with around 2.5 million having this disease.
Now, for the digital tax the Malaysian government is considering because of the technological developments. In this context, technological developments stand for businesses that don’t need a physical presence to continue work.
Australia, South Korea, Japan, and New Zealand have already asked online suppliers to register for value added tax (VAT) or GST. Even Singapore introduced an overseas vendor registration system in its budget this year. This system expects electronic marketplace operators and overseas suppliers to register for GST, if they provide digital services for consumers in Singapore. This will take effect from 1 January 2020.
These aren’t the only countries who have incorporated some form of digital tax. In India, non-resident e-commerce companies are expected to pay an equalisation levy on all the online advertising revenue they earn.
In fact, the Malaysian government wanted to capture digital transactions into the tax net in Budget 2017. If Malaysia introduces a digital tax in Budget 2019, it will be the second country in Southeast Asia to do this. This will also open up a new revenue stream and accelerate the digital economy in Malaysia.
Other Expectations from Budget 2019
Besides the introductions of new taxes, experts are also expecting other changes. Private investments are expected to spearhead the growth in Malaysia. To boost these investments, experts are predicting the government to make the income tax rate more competitive.
Currently, it stands at 24%, which is higher in comparison to Thailand, Vietnam, and Cambodia’s 20% income tax rate. Singapore’s stands at even lesser rate, 17% to be precise. Attracting more foreign direct investments would mean reducing the tax rate to possibly 22%, experts say. This move may also encourage businesses to expand locally.
Another factor the Malaysian government is expected to tackle is the rising urban cost of living, and AMMB Holdings Bhd group CEO Datuk Sulaiman Mohd Tahir has suggested some incorporations. For instance, most of the urban poor are currently renting out properties. However, with social housing measures in place, they may be encouraged to buy and own properties under RM100,000. This could mean lower financing costs, exemption of stamp duties, and lower legal fees for sale and purchase agreements as well as loan agreements. Sulaiman has also suggested introduced a fixed nominal fee so the urban poor can access unlimited public transport rides.
All in all, experts say the new government may have troubles with its maiden budget—whether it’s finding strategies to reduce the nation’s debt or push for economic growth.