by AUFA MARDHIAH / pic MUHD AMIN NAHARUL

THE Finance Ministry’s (MoF) Secretary General of Treasury Datuk Johan Mahmood Merican (picture) stressed the need for transparency regarding the country’s current financial situation.

He also acknowledged that it is not sustainable to maintain all subsidies at once and that a gradual approach is required.

“It is clear that there must be some honesty to the people that the current situation is not sustainable. In that context, when we then framed what we wanted to articulate within the budget speech, we started off by having a discussion that we are not able to remove all subsidies at once,” he said at the 2024 Post-Budget Debate by the Malaysian Economic Association (MEA) on Oct 16.

Johan also discussed the immediate focus on rationalising petrol subsidies and pointed out the ongoing debate on whether to increase prices and compensate through cash transfers or introduce tiered pricing.

For taxation, he stressed the necessity to broaden the tax base, but expressed concerns about the regressive nature of the Goods and Services Tax (GST) and its potential impact on the cost of living for lower-income groups.

Johan also explained the strategy of gradually increasing the Sales and Service Tax (SST) from 6% to 8%, but exempting items like food, drinks, telco and parking to prevent a significant impact on lower-income individuals.

“There is a need to broaden the tax base. While the GST is the most efficient and transparent tax system, it is regressive in nature,” he said.

Nevertheless, Johan said the government is studying ways to improve GST and create a more efficient implementation process.

He also noted that the increase in SST will give the government an expected additional revenue collection of RM3 billion.

Meanwhile, tax advisor and vice chair of the Global Tax Commission of the International Chamber of Commerce Dr Veerinderjeet Singh emphasised the need for a long-term fiscal consolidation roadmap, focusing on tax revenue, expenditure management and efficiency in tax collection.

He also said although the GST can be efficient, it requires strict compliance, while the 8% SST is a logical move.

“GST is efficient because of the input-output mechanism which allows it to be monitored and to curtail evasion, although when it was first introduced many traders avoided or manipulated it,” he added.

Veerinderjeet also highlighted the need for a systematic and efficient refund process to ensure compliance and prevent evasion.

“The refund delay to small and medium enterprises (SMEs) was because of some possibility of evasion and overclaims.”

He encouraged a more comprehensive approach to fiscal planning, with clear targets and well-coordinated policies to avoid conflicting objectives.

He also suggested that the government gradually enhance the current SST to improve its efficiency and structure.

Meanwhile, commenting on the implications of Budget 2024 on the financial markets, Malaysian Rating Corp Bhd (MARC) chief economist Dr Ray Choy opined that Malaysia might be able to exceed the projected 3.5% deficit to GDP over the medium term, which is the government’s target.

He recommended including additional ratios, such as tax revenue to GDP and debt service coverage as a percentage of government expenditure to further enhance fiscal responsibility.

“Malaysia has room for improvement to achieve a regime shift in the ringgit, bond yields and sovereign credit rating,” he said.

Regarding the Capital Gains Tax (CGT), Choy questioned the logic of taxing listed shares while leaving other financial instruments untouched.

“The listed market also includes companies under incubation, smaller companies and companies that are still within the stage of development. Wouldn’t it be counterproductive to tax them?” he said.

Hence, Choy recommended applying the CGT across the entire stock market, moving beyond the focus on listed shares.

He also highlighted the importance of managing expectations in financial markets and stressed the need for clear targets and policy coordination to achieve fiscal goals.

Concurrently, CIMB Group Holdings Bhd regional head of group economic and market analysis Nadia Jalil shared her insights on the budget’s notable absence of changes to fuel subsidies and emphasised the importance of addressing issues like environmental crises, the evolving global economy and the repercussions of the recent global pandemic.

“While the budget looks to be moving in the right direction, we need a more comprehensive restructuring not just of our economic systems, but also how it affects our environment,” she said.

On the omission of fuel subsidy adjustments, Nadia said it was expected, but noted the need for a gradual transition towards targeted subsidies.

Considering the current Middle East situation, where geopolitical tensions could escalate oil prices to US$100 (RM472) per barrel in 2024, these deliberations become even more critical.

Nadia also commented on the budget’s focus on Environmental, Social and Governance (ESG) measures, particularly in encouraging the procurement of electric vehicles (EVs).

She pointed out a contradiction in the budget where the government promotes environmentally friendly practices but continues to support traditional subsidies. She called for more substantial measures to ensure that Malaysia can effectively address the climate crisis.

“The continuation to support all subsidies can actually be pretty regressive. I think there will be chances to move towards more substantive measures,” she concluded.