PLF CEO FORUM 2022 Concurrent Session F:
“THE STATE OF MALAYSIAN GOVERNMENT FINANCES & THE IMPACT OF POLICY IMPERATIVES”
- Prof Dr Jomo Kwame Sundaram. Senior Adviser, Khazanah Research Institute
- Mr Nicholas Khaw. Trustee of Khazanah Research Institute & Head of Research at Khazanah Nasional Berhad
MODERATOR: Datuk Emeritus Prof Dr Norma Mansur. Director of Social
Wellbeing Research Centre, University of Malaya
In concurrent Session F: “The State of Malaysian Government Finances and The Impact of Policy Imperatives”, the moderator Datuk Emeritus Prof Dr Norma Mansur opened the discussion by pointing out that Malaysia’s tax revenue as a percentage of GDP remains low compared to selected Organization for Economic Co-operation and Development (OECD) countries such as Australia, Japan, South Korea, and the United Kingdom. While these countries generally show an increasing trend in tax revenue relative to GDP, Malaysia’s is declining for both direct and indirect taxes. Mr Nicholas Khaw highlighted that Malaysia’s revenues have been significantly supported by dividends from Petronas; however, this is unsustainable.
One of the most crucial issues that the government needs to concentrate on is tax reform. According to Prof Dr Jomo Kwame Sundaram, there were discussions about a decade ago on the rationalisation of subsidies as Malaysia’s narrow tax base combined with a generalised subsidy is unsustainable. The Malaysian fiscal system on the income and expenditure side have been subpar. On the revenue side, the Malaysian tax system has been regressive since the colonial era. Taxes need to be raised, but they must be raised as equitably as possible. This cannot be done overnight but it must be done over the long term
Panel members emphasised that the right budget is needed for Malaysia’s finances to sustain long-term economic growth.
“Throughout the Covid-19 pandemic, Malaysia’s tax revenues were adversely affected, dropping from RM264 billion in 2019 to RM225 billion in 2020. Revenues, however, are expected to recover slightly to RM234 billion, mainly due to the one-off prosperity tax and commodity-related taxes, along with Petronas dividends of about RM25 billion.”
Datuk Emeritus Prof Dr Norma Mansur
“Many factors beyond our control have a significant impact on our budget, such as US interest rates, the war in Ukraine, drought in China, floods in Pakistan, and so on. These factors can affect food and fuel prices which impact inflation here. As such, we need a more sustainable budget jn which we consider the types of revenues and expenditures that we desire. I’m encouraged by some of the policy discussions on fiscal responsibility, subsidies and tax reforms.
Mr Nicholas Khaw
“Petrol subsidies is the single largest subsidy by far, and it is huge. It varies from day to day, depending on price fluctuations, and continues to be a major problem, given the way prices are going…The Malaysian fiscal system, both on the revenue side and on the expenditure side, has been substandard. It has never really risen to the challenges one would expect from a country that claims it wants to accelerate development on the one hand and also have greater economic equity on the other.”
Prof Dr Jomo Kwame Sundaram