KUALA LUMPUR, April 23 – The World Bank has suggested that a precise revenue objective is necessary in addressing Malaysia’s diminishing tax collection throughout the years.
World Bank lead economist for Malaysia, Dr Apurva Sanghi noted that Malaysia’s tax collection has been declining over the years, prompting the government to introduce various revenue-raising measures, including a one-off prosperity tax and changes in the personal income tax rates for higher income brackets.
However, the lack of an annual revenue objective has had an impact on the tax collected.
“Malaysia’s tax collection used to be 15 per cent of the gross domestic product (GDP). While this target should be higher, perhaps around 20 per cent, which is the average collection of comparable economies, I believe (15 per cent) would be a good benchmark to aim for to return to what Malaysia used to collect,” he said.
Apurva said this during a media briefing in conjunction with the release of the World Bank Malaysia Economic Monitor, themed “Bending Bamboo Shoots: Strengthening Foundational Skills”.
He noted that the government’s total revenue is expected to decline to 15.6 per cent of the GDP this year from 17.3 per cent recorded last year.
“Federal government revenue as a share of the GDP is expected to decline due to lower petroleum-related investment income,” he said.
He also highlighted that the country’s spending on subsidies has been on the high side, as subsidy spending for 2023 stood at 3.9 per cent of the GDP, while in 2022, fuel subsidy accounted for 2.9 per cent of the GDP.
“Nonetheless, even if the subsidies were to be cut by half, it would still only represent 0.8 per cent of the GDP.
“Although every fraction of GDP saved is a positive number, this underscores the criticality of implementing the right strategy. Reducing subsidies would not be sufficient,” Apurva said.
For 2024, the government forecasts that subsidy spending will decline, and the share of rigid expenditures will continue to increase.
“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,” he said.
He noted that rigid spending, which includes payments related to emoluments, pensions, and debt service charges, is expected to increase this year, with the government’s total expenditure projected to increase to 58.6 per cent of total operating expenditures in 2024 (2023: 55.3 per cent).
Apurva also highlighted that the debt service ratio is projected to increase to 16.2 per cent of government revenue in 2024 (2023: 14.7 per cent) — higher than the 15.0 per cent administrative limit practised by the government.
