Tax refunds offer liquidity boost to the economy

The total refund represents a sizeable 2.5% of GDP, according to expert


THE utilisation of Petroliam Nasional Bhd’s (Petronas) oneoff dividend to settle outstanding tax refunds of around RM37 billion is expected to have a positive impact on the economy.

The government had announced that Petronas would make a RM30 billion special dividend — in addition to an annual regular dividend of RM24 billion — to pay off the tax reimbursement made up of the Goods and Services Tax (GST) refunds of RM19.4 billion and income tax refunds of RM16 billion.

Sunway University Business School economist Prof Dr Yeah Kim Leng (picture) said while the multiplier effect of the repayment is hard to estimate, it is expected to inject greater liquidity into the economy.

“The total refund represents a sizeable 2.5% of GDP. The direct impact on the economy depends on how the recipient firms spend the money. They could pare down debt, increase working capital, expand operations or invest in new ventures.

“There will be a positive effect on business sentiments with the strengthening of the firms’ finances, while the overall economy will receive a liquidity boost,” he told The Malaysian Reserve recently.

Yeah said there is no precedent in terms of the size of the refund to gauge the economic impact of the move.

However, he said the genuine refunds will allow the new government to maintain trust and integrity of the taxation system, public finance management and the institutions involved.

Meanwhile, Thannees Tax Consulting Service Sdn Bhd MD SM Thanneermalai said he does not expect the repayments to be made immediately as there will be detailed checks carried out on each claim.

“Even in GST, there were scams — so, the government has to be careful before they give out the refunds because they cannot get it back.

“I would imagine at the start of the new year, they will start to give it away. By March or April 2019, they would have given out a lot. But I also think there may be repayments that may even stretch out to 12 months.

“It is not going to happen in one or two months because some of the cases are subject to audit, and with all the issues that arise, it could get delayed,” he said.

The federal government is expecting to receive a revenue of RM261.8 billion in 2019, which includes the one-off special dividend from the state energy firm. This is 10.7% higher than this year’s estimated revenue of RM236.5 billion.

Government figures of an expenditure of RM316.6 billion and revenue of RM261.8 billion point to a budget deficit of RM54.8 billion or 3.6% of GDP in 2019.

Without Petronas’ special dividend, the deficit would have been higher at RM84.8 billion or 5.5% of GDP.

“I don’t have an estimation (on the economic impact of the tax refund), but I would imagine that if companies put the money into investment, you are bound to get employment,” Thanneermalai said.