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Despite GST, Budget 2018 relies heavily on income tax

MP SPEAKS | Prime Minister Najib Razak proudly announced that the projected budget deficit for 2018 will be 2.8 percent compared to 3.0 percent expected for 2017.

However, this target is to be achieved not via more prudent spending but from significantly higher government revenue collection. As previously expressed by Najib, his administration has been “saved” by the implementation of the Goods & Services Tax (GST).

GST is expected to contribute RM41.5 billion to the treasury coffers in 2017, and further increase to RM43.8 billion in 2018. This compares against income from the Sales and Services Tax (SST) last collected from Malaysians in 2014 which amounted to RM17.1 billion.

However, despite the massive increase in government revenues resulting from GST, there was no reprieve for individual and corporate income tax payers. In fact, it has become increasingly painful for Malaysian income tax payers.

For individuals, income tax contributions increased by 4.7 percent from 2015 to 2016. However, for 2017, individual income tax contributions will increase by a massive 9.2 percent to RM30.1 billion. For 2018, individual income tax collection for the government will increase by another 7.1 percent to RM32.2 billion. This is in spite of the proposed 2 percent decrease in income tax rates for taxable income up to RM70,000 per annum.

For corporate tax payers, the increase in burden isn’t any less. While corporate taxes dropped by 0.1 percent from 2015 to 2016, it is expected to increase by 6.6 percent to RM67.8 billion this year. Next year, the increase is at an even higher projection of 6.9 percent to RM72.5 billion.

The above increases in individual and corporate income taxes are disproportionately higher than the 4 percent to 5 percent economic growth rates for Malaysia.

The above lends credence to the widespread discontent against the Inland Revenue Board (LHDN) for their heavy-handed tactics in squeezing substantially higher tax contributions from individuals and businesses. Some have even termed LHDN’s tactics as “tax terrorism” by demanding, with hardly any room for negotiation, backdated taxes of up to 10 years.

The above Budget proved that the Najib administration has not seriously implemented policies to impose prudence in spending. Instead, it is relying almost entirely on increasing taxes to balance its books instead of cutting wastage, eliminating corruption and reducing the cost of government.

As a whole, this is reflected in the significant increase in the federal government operating expenditure which is expected to increase by RM14.4 billion 6.5 percent to RM234.3 billion in 2018. In contrast, the increase in only by RM9.7 billion or 4.6 percent in 2017; while in 2016, the operating expenditure actually reduced by 3.1 percent.

In addition, the operating expenditure as a proportion to total expenditure continued its increase to 83.6 percent, the highest in Malaysian budget history.

Najib’s 2018 budget speech, like the year before, was littered with political sniping and peppered with a litany of election-year goodies. It contained no meaningful reforms in economic policies and institutions to end corruption and wastage.

The 2018 Budget only served to prove the widespread fears that as long as there are no such serious reforms in place, ordinary Malaysians will be forced to bear increasing higher tax contributions – whether it is via the GST, individual or corporate income taxes.

Malaysiakini's Budget 2018 microsite


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