Malaysia on track to achieve 6.5% deficit target this year

Tengku Zafrul says the govt expects a stronger revenue collection in 4Q21


MALAYSIA is on track to meet its fiscal deficit target of 6.5% of GDP this year, depending on the country’s revenue performance, how far it can reprioritise spending and the final GDP outcome.

Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz (picture) said in line with the reopening of the economy and the success of the vaccination rollout, the government expects a stronger revenue collection in the fourth quarter of 2021 (4Q21).

“We already see an uptake in the Sales and Service Tax collection with the reopening of more economic sectors, particularly in the services sector. We have rationalised our expenditure in 2021 to accommodate the increase in the Covid-19 Fund to RM39 billion, which is to finance the additional assistance and stimulus packages.

“So, in total, the overall deficit for this year is expected to be RM98.8 billion, up from the original budgeted amount of RM84.8 billion,” he said during Malaysia’s post-Budget 2022 discussion at virtual Invest Malaysia 2021 Series 2 yesterday.

Tengku Zafrul said all eyes will now be on the country’s second half of the year’s (2H21) performance.

Malaysia recorded a respectable 7.1% GDP growth in 1H21 compared to a contraction of 8.4% in the same period last year, which was contributed by the effectiveness of the government’s economic stimulus and financial aid programmes.

As the 3Q21 GDP results will be announced soon, Tengku Zafrul said the government is projecting weaker numbers given the various containment measures during that period. However, he expressed confidence that a strong recovery would be recorded in 4Q21.

Meanwhile, he said the removal of tax exemption for foreign sources of income as announced in Budget 2022 should not be seen as a negative move to discourage foreign direct investment (FDI).

He stressed that the effectiveness of the investment ecosystem is not only determined by tax incentives, but also on the comprehensiveness of the country’s tax system, which is in accordance with international tax standards.

“This is to ensure taxing is right and fairly distributed to the jurisdictions. This is also to avoid any practices of tax evasion and tax avoidance. So, by signalling Malaysia’s rights to tax, we are signalling the message that we do not condone such practices.

“We have seen in other countries like Hong Kong, Singapore and others which have either removed or amended their laws to meet the international standards,” he added.

Under Budget 2022 announced on Oct 29, it was proposed that income tax be imposed on residents in Malaysia with income derived from foreign sources and received in Malaysia from Jan 1, 2022.

The finance minister also said that the increase in the threshold price of the crude palm oil (CPO) windfall profit tax (WPT) structure for local plantation companies is expected to benefit producers as well.

“We have not only increased the levy (palm oil) percentage, but we will also increase the threshold for Peninsular Malaysia, Sabah and Sarawak,” Tengku Zafrul noted.

Under Budget 2022, the government has proposed to increase the threshold price of the CPO WPT structure for local plantation companies. Local palm oil producers next year will be subject to a standardised 3% levy when CPO prices exceed RM3,000 per tonne in Peninsular Malaysia and RM3,500 per tonne in Sabah and Sarawak.

Tengku Zafrul said the government’s proposed Cukai Makmur (Prosperity Tax) on companies earning at least RM100 million in profit is expected to have an impact on not more than 250 companies.

He assured that the tax will be implemented next year on a one-off basis, as the country is facing an extraordinary time and the new tax would be implemented in that spirit.

“Tenaga Nasional Bhd, Axiata Group Bhd and Telekom Malaysia Bhd had stated their support for the government’s Budget 2022 proposal to implement the Prosperity Tax, which aims to ensure the country’s public health system can face future threats.

“Top Glove Corp Bhd has also indicated that it is happy to contribute to the special one-off tax. Several large corporations had said that the one-off tax will not affect their dividend payments.”

In his Budget 2022 speech, Tengku Zafrul had said that companies which report annual taxable income of more than RM100 million will be subjected to a 24% income tax on the first RM100 million of their annual taxable income, while the remaining taxable income will be taxed at 33%.