Malaysia says sales tax would take 14 months to implement

KUALA LUMPUR (REUTERS) - Malaysia's goods and service tax (GST) will take 14 months to implement if announced in the budget in October, a ministry official said on Thursday, as the government moves to curb its stubborn fiscal deficit and high debt burden.

The GST will help Malaysia broaden its tax base and tackle a fiscal deficit that has widened to RM14.9 billion (S$5.7 billion), as well as a shrinking current account surplus which fell sharply to RM2.6 billion in the second quarter.

"If announced now it will come online in 2015," said the finance ministry's secretary general Mohd Irwan Serigar Abdullah.

Mr Mohd Irwan also said that Prime Minister Najib Razak will announce a decision on subsidy rationalisation soon.

"We are confident of achieving our fiscal target of 4 percent of GDP this year," he said. He added that he sees it reaching 3 percent in 2015 and potentially reaching a surplus budget by 2020.

The Malaysian government is also considering whether to review and space out budget-straining public sector projects to address its evaporating current account balance.

No projects were identified yet but Mr Mohd Irwan stressed that the publicly funded RM50 billion Mass Rapid Transit (MRT) rail system project will not be affected.

"The possible rescheduling refers to projects with heavy public sector involvement, not private sector projects," Mr Mohd Irwan said.

Mr Idris Jala, the government minister spearheading the RM444 billion Economic Transformation Programme (ETP), added that the government is "looking at sequencing projects with low multiplier effect and high import content".

A fiscal policy committee meeting to discuss these measures will be held on Monday and will be chaired by Mr Najib. Its decisions will be reflected in the upcoming 2014 budget.

Malaysia's annual growth rate picked up slightly to 4.3 percent in the second quarter. It was bolstered by strong government spending before national elections in May and resilient domestic demand helped by large infrastructure projects under MR Najib's ETP.

Mr Mohd Irwan added that he has spoken with officials from rating agency Moody's, who said they will consider Malaysia ratings only after the new budget is revealed.

Another ratings agency Fitch cut its outlook on Malaysia's A-minus sovereign debt to negative from stable in July, citing a lack of reform to tackle rising debt.

The Malaysian ringgit has lost more than 7 percent so far this year against the dollar and stocks have slid nearly 7 from their peaks in mid May amid a global emerging market sell-off, sparked by the US central bank's plan to soon begin tapering back its stimulus and growing fiscal strains in some developing countries.