The Malaysian Insight

PUTRAJAYA is expecting a 5.9% increase in revenue for next year, to RM234 billion, with taxes being the major contributor to federal coffers. 

According to the government’s 2022 Fiscal Outlook and Federal Government Revenue Estimates report, the optimistic projection is in line with expectations of better economic prospects as the country recovers from Covid-19.

Putrajaya is expecting RM171.4 billion in tax revenue, which equates to about 73.2% of total share of revenue, said the report, released in conjunction with tabling of Budget 2022 today.

“However, as a percentage to GDP, (tax revenue) is estimated to decline slightly to 10.5% reflecting lower buoyancy during the economic recovery period,” it said.

Collection of direct taxes is expected to increase by 6.1% to RM127.3 billion which will be 74.3% of total tax revenue, on the back of better corporate earnings prospects, anticipated due to the vaccination programme and economic recovery.

“Hence, CITA (corporate income tax) remains the largest contributor to the increase in direct tax at RM65.5 billion in 2022,” the report said. 

“This is followed by individual income tax, which is expected to improve by 3% to RM37.5 billion, consistent with expected improvements in the job market,” it added. 

As for petroleum income tax, the government is projecting RM12.4 billion.  

Other direct tax components such as stamp duties and Real Property Gains Tax are expected to contribute RM6.6 billion and RM1.8 billion, respectively, as a higher value and volume of transactions is expected from the property sector.

Revenue from indirect tax is also expected to increase by 5.4% to RM44 billion, mainly due to the collection of the sales and service tax (SST). Improving consumer and business sentiments is expected to rake in RM27.6 billion in SST. 

Meanwhile, non-tax revenue is also estimated to increase by 5.8% to RM62.6 billion, due to higher proceeds from investment income.

Petronas is expected to contribute RM25 billion in dividends and from Bank Negara Malaysia, another RM5 billion.

Collection from licences and permits is expected to increase slightly to RM10.9 billion due to higher proceeds from petroleum royalties which is projected to be to the tune of RM4 billion. 

“Other major components under licences and permits, namely motor vehicles licences and levy on foreign workers, are estimated to be stable at RM3 billion and RM1.9 billion, respectively,” the report said. 

Petroleum-related revenue is expected to contribute RM43.9 billion or 18.8% of total revenue —more than half of which will be in the form of dividends from Petronas.

The government is also forecasting non-petroleum revenue to increase by 6.5% to RM190.1 billion as a result of better revenue diversification on the back of a favourable economic outlook. 

Lower revenue this year 

For 2021, Putrajaya is expecting to register RM221 billion in total revenue, which is 1.8% lower than the RM225.1 billion for last year. The drop is attributable to a fall in proceeds from non-tax revenue due to lower investment income. 

However, tax revenue, which accounts for 73.2% of total revenue, is projected to increase 4.8% to RM161.8 billion from RM154.4 billion in 2020.  

Non-tax revenue, on the other hand, is expected to bring in about RM59.2 billion.

“Direct tax is anticipated to turn around by 6.7% to RM120 billion, mainly contributed by higher companies income tax (CITA) collection of RM60.6 billion. The better performance is a consequence of low base effect, supported by several factors such as higher tax instalment payments from the corporate sector in 2021 following tax deferments provided in 2020,” the report said. 

Individual income tax, meanwhile, is expected to decline for 2021 by 6.6% to RM36.4 billion due to fewer taxable individuals following the high unemployment rate of 4.5%.

Tax income from petroleum activities is also expected to drop to RM11.5 billion from RM12.8 billion a year earlier, due to higher extraction costs despite higher crude oil prices.

Property-related taxes are forecast to increase to RM8.2 billion due to higher transactions. 

Indirect tax revenue is projected to dip marginally by 0.3% to RM41.8 billion from RM41.9 billion on the back of lower SST (RM26.5 billion) and excise duties collection(RM9.8 billion), given lower spending during a pandemic hear.

The lower collection from indirect taxes has been cushioned by windfall profit levies and export duty for crude palm oil, the report said. – October 29, 2021.