Malaysia to lose $140b if revenue flows are cut

Dr Mohd Irwan Serigar Abdullah said Malaysia's debt would rise to 78 per cent of its economy if revenue sources are scrapped.
PHOTO: THE STAR /ASIA NEWS NETWORK
Dr Mohd Irwan Serigar Abdullah said Malaysia's debt would rise to 78 per cent of its economy if revenue sources are scrapped.
PHOTO: EPA-EFE
Dr Mohd Irwan Serigar Abdullah said Malaysia's debt would rise to 78 per cent of its economy if revenue sources are scrapped.
Dr Mohd Irwan Serigar Abdullah said Malaysia's debt would rise to 78 per cent of its economy if revenue sources are scrapped.PHOTO: THE STAR /ASIA NEWS NETWORK

Finance official details burden in response to opposition's pledge to remove GST and payments

KUALA LUMPUR • Malaysia will lose RM416.6 billion (S$140 billion) if its goods and services tax (GST), road tolls and other sources of revenue are scrapped, said a senior official in the Ministry of Finance.

The opposition pact Pakatan Harapan (PH) had pledged to remove these taxes and payments in its election manifesto last week.

Ministry of Finance secretary-general Mohd Irwan Serigar Abdullah told The Star the country stood to lose RM45 billion a year if it abolished the GST, and RM338 billion if it stopped collecting tolls and took over toll companies and their debts.

Another RM3.9 billion a year will be lost if it cut out study loan repayments under the National Higher Education Fund (PTPTN) scheme while a removal of excise duties will cost the government RM2.4 billion a year in lost revenue.

Tan Sri Irwan said the country's debt would also increase as a result, to 78 per cent of its economy.

He defended the 6 per cent GST, saying the government had been studying it for years before it was introduced.

  • LOSSES AT A GLANCE

  • RM338b Cost of taking over toll companies if Malaysia stopped collecting tolls.

    RM45b Annual revenue loss if the country abolished GST.

    RM3.9b Annual revenue loss if it cut out study loan repayments.

    RM2.4b Annual revenue loss if excise duties were removed.

"More than 500 basic items, among them rice, sugar, vegetables and medical goods, are not subjected to GST because the tax here is different from other countries," he said. "In India, which introduced GST after Malaysia, the rates are variable at between 5 and 28 per cent."

Dr Irwan also explained that the tax was necessary to counter falling revenues when oil prices dropped.

"When the GST was introduced in Malaysia on April 1, 2015, the oil price fell from US$100 per barrel to less than US$40 per barrel and government's revenue fell. We cannot be in a state of uncertainty. We have to pay salaries, manage the state, hospitals, education and they need revenue," he said.

Dr Irwan said even if a sales and service tax was reintroduced to replace the GST - another proposal from the opposition - it would only raise RM18 billion annually, leaving a revenue shortfall of RM27 billion.

Both the ruling coalition Barisan Nasional and PH have proposed measures to manage voter concerns about rising costs, as the country heads to its next general election that is due to be held by August but expected to be called in the coming weeks.

The opposition, in its alternative Budget 2018 unveiled late last year, had said it can make up the revenue shortfall from removing GST by eliminating corruption and financial "leakages" in government, for example, from handing out projects at inflated values to favoured businessmen. It had also suggested introducing inheritance tax and other taxes for the rich.

"On the tolls, the (Finance Ministry) has to pay compensation to companies because they have investors, such as the Employees Provident Fund, which earn money which comes from these tolls," Dr Irwan told The Star.

"In the Klang Valley, there are 19 tolls, while outside the Klang Valley there are 12. If the government wants to step in, we have to pay RM338 billion," he said.

"If we add the RM338 billion to the national debt of RM686 billion, our debt will increase to RM1 trillion, and if we divide it by the size of Malaysia's RM1.3 trillion economy, it means that our country's debt has risen to 78 per cent (of gross domestic product or GDP)," he said.

According to Dr Irwan, Malaysia has a self-imposed debt ceiling of 55 per cent of GDP, and currently its debt stands at about 50 per cent of GDP.

On easing the financial burden of graduates repaying loans under the PTPTN scheme, Dr Irwan said: "If the student's score is good, he does not have to pay back PTPTN, and if they are consistent in paying, PTPTN will give them a 10 to 20 per cent discount."

Dr Irwan said Malaysia's economy was stable and it enjoyed an "A-" rating by international rating agencies.

"Our economy is on a solid track. It grew 5.9 per cent last year and this year we expect the economy to continue growing between 5 and 5.5 per cent," he said.

A version of this article appeared in the print edition of The Straits Times on March 13, 2018, with the headline 'Malaysia to lose $140b if revenue flows are cut'. Print Edition | Subscribe