Malaysia needs to formulate medium to long-term revenue strategy -- World Bank

The Star

It is high time for Malaysia to have a proper medium to long-term revenue strategy to restore its fiscal buffers, said World Bank lead economist Apurva Sanghi.  He said Malaysia’s revenue as a share of the gross domestic product (GDP) has been declining, with tax revenue being well below 12 per cent of GDP.   WATCH MORE: https://thestartv.com/c/news SUBSCRIBE: https://cutt.ly/TheStar LIKE: https://fb.com/TheStarOnline

Transcript

00:00 My name is Joshua, I'm the external affairs officer for the World Bank Malaysia country

00:03 office.

00:04 So the question is about revenue mobilisation.

00:10 So we believe that it's high time Malaysia has a proper medium term revenue strategy.

00:19 So as you very well know, revenues as a share of GDP have been declining, so tax revenues,

00:24 federal tax revenues are below 12% of GDP and all the usual numbers that are already

00:29 out there in the public domain, so I won't dwell over them.

00:33 But when it comes to this MTRS, medium term revenue strategy, what is the most important

00:37 thing?

00:38 Well, according to us, the most important thing is to have a long term fiscal view on

00:44 what the Malaysian economy needs to spend on and hence how much more revenue it needs

00:49 to mobilise.

00:51 So right now, to the best of our knowledge, there is no target of revenue raising, that

00:58 revenues need to be raised.

00:59 We know that revenues are low, below 12% of GDP, but how much do they need to be increased

01:04 by?

01:05 Is it 12.1%?

01:06 Is it 13%?

01:07 Is it 15%?

01:08 Is it 20%?

01:10 So we don't know.

01:12 So the step number one is to have a long term fiscal view of Malaysia's spending needs by

01:19 sectors, for example in health, which actually we do, the World Bank has done some calculations,

01:25 but replicating that across the key sectors and then having a quantitative target to raise

01:31 revenues.

01:33 And then depending on the revenue gap between current state of revenues and what needs to

01:37 be raised, then you can talk about the mixture of optimal instruments.

01:42 So to give you an example, if it's, say, hypothetically speaking, raising revenues from the current

01:46 say 12% to 12.1%, then do you need GST?

01:50 I don't think so.

01:52 You can tweak and tinker around to get that hypothetical 0.1% point increase where that

02:00 means.

02:01 But if the gap is, if the revenue target is say 20%, from 12 to 20%, then you need to

02:06 have a more holistic view on, well, what is the optimal mix of instruments that would

02:12 give me the most revenue?

02:13 With two very important things, that if GST is part of that mix, well GST by nature is

02:21 aggressive, then what are the mechanisms you have in place to address those regressivity

02:26 concerns?

02:27 But that's really important.

02:28 And that could apply to other tax instruments as well.

02:31 No tax instrument is perfect.

02:33 It has its pros and cons.

02:34 So how do you maximize the benefits while minimizing the cons of each tax instrument?

02:39 So that needs to be part of this MTRS.

02:42 But equally importantly, that's on the revenue side.

02:45 I think it's very important for the government to show and to signal that these revenues

02:50 should be used productively.

02:52 Because there's no point raising revenues if they are going to be not utilized efficiently

02:58 or effectively.

02:59 It's like putting water in a leaky bucket.

03:02 So managing expenditures becomes an equally important task and signal of the government

03:11 to send to the Rakhya saying that, okay, if we are going to ask you to pay more taxes

03:15 through GST, through PIT, whatever it is, this is what we are doing.

03:20 This is what we are putting in place to ensure that we are plugging in those holes in this

03:24 leaky bucket as much as possible.

03:26 So for example, by expediting the Government Procurement Act would be a great start because

03:31 a lot of the inefficiencies happen through public procurement in Malaysia.

03:36 So that's just one example.

03:37 But there are other ways you can manage expenditure efficiency as well.

03:41 Thank you.

03:42 [End of Audio]

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