KUALA LUMPUR: Concerns over Malaysia's narrow tax base following the replacement of the Goods and Services Tax (GST) with the Sales and Services Tax (SST) in 2018 have become more urgent.
Malaysian Rating Corp Bhd (MARC) said following the reversal, direct tax rates did not go up to pre-GST levels when indirect tax base went down.
The strategy of relying on contributions from state-owned enterprises and other peripheral taxes such as the one-off prosperity tax in 2022 to plug deficits is unsustainable yet blunt, MARC added.
'These strategies could be prolonged for political reasons amid the looming general election," MARC said in its post-2022 Budget statement today.
The firm said the national budget remained strongly expansionary with a record allocation of RM332.1 billion for next year.
The government's operating expenditure (opex) and development expenditure (DE) came in higher at RM233.5 billion and RM75.6 billion (2021 estimates: RM219.6 billion and RM62.0 billion), it added.
Meanwhile, the Covid-19 Fund allocation has been slashed to RM23.0 billion from 2021's revised estimate of RM39.0 billion (original estimate: RM17.0 billion).
MARC said in line with improving economic conditions, government revenue was envisaged to grow 5.9 per cent to RM234.0 billion in 2022.
"The government is targeting a smaller budget deficit of 6.0 per cent of GDP (gross domestic product) for 2022 (2021 estimate: 6.5 per cent) on the back of higher projected growth of between 5.5 per cent and 6.5 per cent. We see the downside risks of the budget deficit forecast to include pandemic uncertainties, the upcoming general election and the external sector," it said.
MARC said the allocation of RM75.6 billion for gross DE is the highest amount ever allocated and is also aligned with the RM400 billion DE allocation under the recently-announced 12th Malaysia Plan (12MP).
"We laud the government's efforts in addressing the here-and-now needs of the rakyat. With this in mind, the government's focus appears to remain tightly on economic recovery efforts given that the economy is still in recession.
"Notwithstanding this, the government must start addressing underlying structural issues as soon as possible to prepare the ground for strategic economic resetting as set out in the 12MP," it said.
MARC said to sustain growth, Malaysia must, first and foremost, reposition itself as an attractive investment destination vis-à-vis its regional peers.
However, technology adoption and skills shortage continue to be major concerns.
"It is important to note that the budget assumes a business-as-usual scenario for international trade. Given the present crisis, continuous improvements in net exports in supporting Malaysia's overall economic growth is paramount," it added.