Xinhua, Kuala Lumpur :
The Malaysian government may see a successful transition from the goods and services tax (GST) to Sales and Services Tax (SST) without widening the budget deficit too much, supported by higher oil revenue and lower expenditure, said a research house Monday.
RHB Research Institute said in a report, while the move to zero-rated GST next month onward will lead to a huge revenue loss to Malaysia, the fast-tracking of the SST re-implementation, higher oil prices and potential cuts in expenditure may bring this loss to a more manageable 1.7 billion ringgit (427 million U.S. dollars), or 0.1 percent of the country’s gross domestic product (GDP).
“This may result in a budget deficit of 2.9 percent of 2018 forecast GDP, versus 2.8 percent presently, if our assumption on the cut in government expenditure and the timing of the SST implementation comes through,” it said.
The research house opined that the new Malaysian government has so far shown it has the will to cut a substantial part of expenditure, since it has gone to the extent of terminating contract staff and dissolving “non-essential” departments.
According to its calculation, the loss of GST revenue is expected to lead to a revenue loss of 25.6 billion ringgit (1.8 percent of GDP) and the reintroduction of fuel subsidy and civil servants pay hike are likely to cause some revenue falls of 3 billion ringgit (0.2 percent of GDP) and 1.5 billion ringgit (0.1 percent of GDP) respectively.
However, oil revenue from higher oil prices and SST reintroduction are projected to add 6 billion ringgit (0.4 percent of GDP) and 7.5 billion ringgit (0.5 percent of GDP) to the country’s coffer. The cuts in operating and development expenditure may save up to 14.9 billion ringgit, which is equivalent to 1 percent of GDP.
RHB Research believed, the key to achieve Malaysia’s deficit target lies in whether the country’s government is able to cut a substantial part of expenditure.
While the government has indicated that it will terminate 17,000 political appointees from the workforce, and ministers’ salaries would be cut by 10 percent, the research house opined that the savings are not expected to be very large.
Thus, it believed the government may look into other areas such as subsidies, which account for 11.3 percent of the country’s operating expenditure (OE); supplies and services (14.4 percent of OE) and other expenditure (7.2 percent of OE).
All in, the government may able to cut its operating expenditure by 11.9 billion ringgit, it said.
