KUALA LUMPUR: Malaysia needs a firm annual tax target to gauge collection potential from taxes as subsidy rationalisation alone is not sufficient to boost government coffers, the World Bank lead economist for Malaysia Apurva Sanghi said.

The government's revenue is projected to decline to 15.6 per cent of gross domestic product (GDP) this year compared to 17.3 per cent in 2023, mainly due to lower investment income under non-tax revenue collection.

Specifically, the government anticipates lower dividends from Petronas even though its assumption for global oil prices is slightly higher for 2024 at US$85 than US$82.5 per barrel in 2023.

Apurva said Malaysia has consistently fallen short in tax collection. 

"There's a pressing need to increase this revenue, but the question remains: by how much? What's missing is the announcement of a concrete revenue target. So currently the tax to GDP target is 12.6 per cent but what should the target be? Should it be 15 or 20 per cent? 

"If you don't set a target then you don't know where you're going. It's important to know where you're going," he told reporters at the release of the bank's latest edition of "Malaysia Economic Monitor Bending Bamboo Shoots: Strengthening Foundational Skills" here today.

Apurva said the government has implemented several measures to boost revenue.

This includes the prosperity tax, personal income tax adjustments, heightened sales services tax rates and increased capital gains taxes.

Although these initiatives indicate some progress in enhancing tax collection, they still fall short of meeting the required targets, he added.

Subsidies and social assistance spending are expected to decline to 2.7 per cent of GDP in 2024 from 3.9 per cent in 2023, mainly from lower fuel subsidies. 

Rigid spending, which includes payments related to emoluments, pensions and debt service charges, is projected to increase to 58.6 per cent of total operating expenditures in 2024 (2023: 55.3 per cent). 

Of note, the debt service ratio is projected to increase to 16.2 per cent of federal government revenue in 2024 (2023: 14.7 per cent), higher than the 15.0 per cent administrative limit practiced by the government.

On the other hand, Padu could enable the government to implement more targeted measures that can improve spending efficiency.

However, the government has yet to finalise the modality of targeted subsidies, such as the eligibility threshold, amount of fuel subsidies per person and how the subsidy will be disbursed.

Several tax-related measures had been implemented this year to broaden the tax. 

For instance, from March 1, the government imposed a capital gain tax (CGT) of 10 per cent on the net gain of the disposal of unlisted shares for companies, as well as a higher service tax rate for selected services with a broader scope. 

While these measures show positive signs of the government's efforts to enhance tax collection, they are still insufficient at addressing the revenue inadequacy arising from growing tax gaps in Malaysia.

https://www.nst.com.my/business/economy/2024/04/1041046/concrete-annual-tax-objective-needed-gauge-malaysias-potential-tax