SST is increasing to 8%, new taxes are being introduced, and subsidies are getting cut. What is our prime minister trying to do?
Before we answer this question, we first need to understand the state of our nation, specifically, our debts and revenue sources.
How much is Malaysia’s debt?
According to FMT, for years now, our country has been spending more than it makes, and the rate of increase in the deficit has been described as “alarming”.
Currently, our fiscal deficit (shortfall in revenues as compared to expenditures) stands at 5.6% of GDP. This means that the difference between what the government spends and what it earns is equivalent to 5.6% of the entire country's economic output for that year.
In other words, for every RM100 our country produces in goods and services (GDP), we are spending RM5.60 more than we are taking in as income or revenue.
At the same time, as of August 2023, our total federal government debt stood at RM1.147 trillion or 62% of GDP. Put simply, our government's debt is equivalent to 62% of our country's annual economic output.
If we don’t try to bring our debt-to-GDP ratio as well as fiscal deficit down, we could be facing an economic crisis which will be difficult to come back from.
We’re almost hitting that ceiling and something needs to be done about that.
How does Malaysia pay its debts?
You know how when we take out a loan and we have to do our monthly repayments to service our debt? Well, for a country, it works the same but it’s called debt service charges.
According to Datuk Seri Anwar Ibrahim, “(our country’s) debt service charges for 2023 amount to RM45 billion, representing 15% of the national revenue, and this is also the maximum that the country can handle.”
In the Revised Budget 2023, Malaysia is expected to have a revenue collection of RM291.5 billion.
Now you might be asking, what money does our government use to service our country’s debt? Through our revenue, of course!
This is why time and time again, we hear people talking about the importance and urgency of increasing our country’s revenue.
Where does Malaysia’s revenue come from?
There are three types of revenue that our country relies on – Direct Tax, Indirect Tax and Non-Tax revenue.
Direct Tax revenue comes from the tax you pay directly to the government based on your income or company profits. Examples of this include Individual Income Tax, Corporate and Business Income Tax, Real Property Gain Tax, Petroleum Income Tax and Stamp Duty.
Meanwhile, Indirect Tax revenue is money the government collects from taxes added to the prices of goods and services. So, instead of being paid directly by individuals based on income, these taxes are usually paid by businesses, but the cost is passed on to consumers in the form of higher prices. For instance, Sales and Service Tax (SST), Export Duty and Import Duty.
Finally, Non-Tax revenue refers to the money the government collects that isn't from taxes. Instead, it comes from sources like fees for services, licenses, fines, or profits from state-owned enterprises.
So, what does all this have to do with DSAI introducing more taxes and cutting subsidies in Budget 2024?
When Datuk Seri Anwar Ibrahim tabled his Budget 2024, his main focus was to bolster
our country’s revenue and tax management as part of economic reforms and to tighten its finances. This was to reduce our fiscal deficit in hopes of boosting investor confidence and spurring economic growth.
Having that goal in mind, the current government worked tirelessly to introduce fiscal policies, cut spending, increase the tax base and overall tighten our country’s economic belt.
Ultimately, it all boiled down to the tabling of Budget 2024. And as we are all already aware, there were some announcements that took the rakyat by surprise.
Some of those “surprises” include:
Service tax (from SSR) increased from 6% to 8%.
Introduction of Capital Gains Tax for the disposal of unlisted shares by local companies at a rate of 10% from 1 March 2024.
Introduction of Luxury Goods Tax at a rate of 5% to 10%.
The total allocation for subsidies was reduced from RM81 billion (in 2023) to RM52.8 billion (for 2024).
The price ceiling for chicken and eggs is to be lifted.
In the case of introducing and increasing taxes, the whole goal of it is to increase our country’s tax base. By doing this, the government would be able to raise more revenue which can go towards reducing our debt and fiscal deficit as well as be channelled towards growing our economy.
Currently, the tax collected by our government is one of the lowest in ASEAN at 11.8% of GDP compared to Singapore (12.6%) and Thailand (16.4%).
Meanwhile, in the case of subsidy cuts, it is to ensure that aid reaches the intended communities and to limit leakages, particularly at this time of rising prices.
How should Malaysians feel about this?
I get it, new taxes suck – especially the increase in SST because there could be far-reaching implications like an overall price increase.
Just like how Syed Saddiq put it, while the SST increase excludes the food and beverage sector, restaurant owners will be affected by purchases of equipment needed to run their businesses. (And) when the restaurant owners’ costs increase, they will transfer these costs to the consumers — that’s all of us here. The Muar MP said this will contribute to a spike in the rakyat’s cost-of-living expenses.
However, that can’t be said for certain as the increase has yet to be implemented so we’ll only know the consequences of it next year.
Now, with the cutting of subsidies, we’ve all been reliant on them for a long time. So, now with DSAI planning to cut back on them, I get that it’s a bit more difficult for us Malaysians to accept it. After all, who would be fine if they’re expected to pay more?
But at the same time, if we take a look at how our prime minister is planning to implement targeted subsidies and in a way, “cut off the rich”, then I guess it would be “fair game”.
What do you think of the new taxes and subsidy cuts in Budget 2024? Reach out to us and let us know your thoughts!
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