Malaysia: Economic Report 2017/18: Fiscal deficit to be reduced to 2.8%

• Oct 27, 2017

THE Federal Government’s financial position is expected to improve mainly due to higher revenue collection from higher income taxes and Goods and Services Tax (GST), and modest expenditure growth.

The move will enable the government to reduce the fiscal deficit to 2.8% of GDP or RM39.8bil from 3% at RM39.9bil.

The Federal Government debt as percentage to GDP is projected to be about 50% as the government strives to reduce the fiscal deficit to achieve a near-balanced budget in 2020.

Total revenue – comprising tax revenue, non-tax revenue – is expected to increase 6.4% to RM239.86bil from RM225.33bil due to better economic activity and a supportive business environment.

In 2018, tax revenue collection – comprising direct tax (companies income tax, individuals income tax and petroleum tax) – is expected to rise 6.3% to RM191.59bil from RM180.19bil in 2017.  
Direct tax collection is envisaged to be higher at RM127.71bil, up 6.7% from RM119.699bil. 

The largest contributor to the direct tax will be companies income tax at RM72.475bil (RM67.822bil in 2017), followed by personal income tax of RM32.234bil (up 7.1% from RM30.09bil). It also envisages collecting higher petroleum income tax of RM11.445bil (from RM10.937bil).

Indirect tax – comprising GST, excise duties, import and export duties – will account for 26.6% of the tax revenue at RM63.856bil (RM60.495bil in 2017). 

GST collection is expected to increase to RM43.80bil (from RM41.50bil); excise duties at RM12.33bil, import duty RM3bil and export duty RM1.4bil.

Non-tax revenue is expected to be higher by 7% to RM48.29bil of which licences and permits account for RM13.56bil and investment income RM24.588bil.

Expenditure
The government’s expenditure is expected to increase 5.4% to RM280.2bil from RM265.9bil. 

Of the amount, RM234.25bil or 86.3% will be for operating expenditure and the remaining RM46bil or 16.4% for development expenditure.

Of the RM234.25bil, emoluments to account for 33.8% of operating expenditure at RM79.15bil.

Retirement charges to account for 10.5% at RM24.55bil; debt service charges 13.2% at RM30.88bil of which RM30.147bil will be for domestic debt.

Total subsidies and social assistance is expected to rise to RM26.54bil from RM23.1bil.

Federal Government development expenditure for 2018 will see an allocation of RM26.34bil for economic activities or 57.3% of total expenditure. 

They include agriculture and rural development, energy and public utilities, trade and industry, transport, communications, environment and others.

Transport will be allocated nearly one-quarter of the amount under economic activities, at 22.8% or RM10.479bil.

Social activities will receive RM11.720bil or 25.5% of the development expenditure. Social activities include education and training which will be allocated RM5.256bil; others RM3.387bil; health RM1.91bil; housing RM1.167bil.

Defence and internal security will be allocated RM5.21bil or 11.3% of the development expenditure. There will be a slight decrease for defence at RM3.84bil (from RM4.25bil in 2017) while internal security will see an increase to RM1.372bil (from RM1.036bil).

Source: http://www.thestar.com.my/business/business-news/2017/10/27/fiscal-deficit-to-be-reduced-to-2pt8pct-in2018/#3YcOrcZsbERIlw0b.99