Govt may not introduce new taxes next year

Without new taxes, economists opine that the sources of govt revenue in 2022 will likely be limited


ECONOMISTS do not foresee the government implementing new taxes next year under Budget 2022 as the economy is still in a fragile state.

RHB Research Institute Sdn Bhd chief economist and head of market research Dr Sailesh K Jha and senior economist Nazmi Idrus, however, did not rule out the possibility of an announcement on new taxes that could take effect in 2023 or later.

“Broadening the tax base will still be a major consideration given the government’s need for fiscal consolidation.

“Speculation is rife over the implementation of the Capital Gains Tax on traded shares, as well as Windfall Tax on companies’ excess profits, and the government has been toying with the idea of reintroducing the Goods and Services Tax,” they said in a report yesterday.

Without new taxes, they opined that the sources of government revenue for next year will likely be limited.

However, the government is expected to gain revenue from better economic growth, improved compliance and efforts to combat illegal trade, including measures to tighten controls on licensing and importation.

Other avenues that could boost government revenue are higher commodity prices and expiry of some fiscal support in place this year.

“Meanwhile, we project spending to be expansionary, with total expenditure higher than last year’s allocation. The burden for the government should ease relative to this year premised on better growth prospects and lower risk of new widespread lockdowns.

“However, Covid-19 may still pose a threat in 2022 which means that the government may still want to keep some fiscal space for unforeseen events,” they said.

Fiscal deficit is expected to drop to 6% in 2022 from between 6.5% and 7% in 2021 as some form of fiscal consolidation will be in place.

However, in levels, the fiscal deficit could be higher in 2022 compared to 2021. As a result, gross issuance of local currency government bonds could be higher in 2022, they added.

In the auto sector, Sailesh and Nazmi suspect the sales tax exemption for passenger vehicles will be continued in Budget 2022, while the real estate segment will receive a significant boost under the Home Ownership Campaign which is expected to be extended into next year.

“Sustainable development has gained more prominence. We believe measures including electric-vehicle (EV) adoption would likely be introduced.

“This may include EV power station incentive, green financing and support for low-emission vehicles. On top of that, to achieve the aspiration towards a low-carbon economy, provisions will likely be in the budget for carbon tax and Emissions Trading Scheme feasibility study, as well as promotion for a circular-based economy.”

They added that development expenditure could reach another record high as the 12th Malaysia Plan (12MP) has earmarked RM400 billion in development spending for 2021 until 2025, which is significantly higher com- pared to RM252 billion in the 11MP.

“As a result, we could likely see allocation for development expenditure in Budget 2022 on the upwards of RM70 billion compared to RM68.2 billion in 2021,” they said.

Meanwhile, DAP secretary general Lim Guan Eng said Budget 2022 should “abandon” the projections in Budget 2021 which he claimed has failed to pull the economy out of recession and missed many economic targets.

He expects the deficit for Budget 2021 to increase to more than 7%, while the GDP growth is likely to be scaled down to 4% compared to the government’s projections of up to 7.5% previously.

“In other words, our economy will not be normalised by the end of 2021 and will still be smaller than the end of 2019, the last year that Pakatan Harapan (PH) was in power.

“PH and DAP had tried to assist the people and businesses, especially small and medium enterprises, by compelling the government to agree to an additional RM45 billion fund injection and a three-month interest waiver for the poorest 50% of the population by signing a memorandum of understanding with the prime minister,” he said in a statement yesterday.

Lim added that during the course of three budget consultations with Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz, PH had stressed on the need for Budget 2022 to be people-centric and not politic-centric for cronies.