Prime Minister Najib Razak's plan to boost spending by up to 7.5 per cent next year largely on populist measures may put a smile on the faces of Malaysian voters ahead of a general election due next year.
But there are concerns that to meet the government's ambitious revenue target, the taxman would be overzealous in chasing down individual and corporate taxpayers.
Income tax collection next year is expected to grow by 6.9 per cent to RM104.7 billion (S$34 billion), a jump of RM7 billion, according to the Finance Ministry's annual report. This is faster than the projected 5.2 per cent economic growth in 2018.
There is growing anecdotal evidence among the country's 2.3 million individuals who pay income tax pointing to a spike in audits and claims of unilateral blacklisting by the Inland Revenue Board, known by its Malay acronym LHDN.
Media reports in recent months also highlighted aggressive tax collection involving tens of millions of ringgit from major companies, including national utility Tenaga Nasional and Tan Sri Lee Kim Yew, the founder of property-and-hotel player Country Heights Holdings.
"(The tax projection) lends credence to the widespread discontent against LHDN for its heavy-handed tactics in squeezing substantially higher tax contributions from individuals and businesses. Some have even termed LHDN's tactics as 'tax terrorism' by demanding, with hardly any room for negotiation, backdated taxes of up to 10 years," said senior opposition lawmaker Tony Pua.
Even the unpopular 6 per cent Goods and Services Tax is set to grow faster than next year's gross domestic product at 5.5 per cent, despite further exemptions announced in Budget 2018.
RM105b Estimated income tax collection next year, a rise of 6.9 per cent or RM7 billion.
RM73b Additional tax that corporates are expected to pay in 2018, a 6.9 per cent increase.
This raises the question of whether the government will resort to denying refund claims for the value-added consumption tax.
The increase in tax collection undermines the assertion by Datuk Seri Najib, who is also Finance Minister, that a 2-percentage-point cut in tax for chargeable income of between RM20,000 and RM70,000 will put RM1.5 billion in disposable income back into the market.
This is due to the Finance Ministry projecting a rise next year of 7.1 per cent, or over RM2 billion, in individual income taxes from 2017. UOB Kay Hian's Malaysian head of research, Mr Vincent Khoo, noted that LHDN had already stepped up enforcement this year, and deemed the tax collection target for next year "challenging", because "2018 would have presumably less one-off benefits from the Inland Revenue's overdrive against errant taxpayers".
The Finance Ministry's own numbers seem to indicate that the taxman's appetite has spiked this year, with personal income tax collection soaring by 9.2 per cent to RM30.1 billion. Corporates are expected to pay 6.9 per cent more next year (RM72.5 billion), after a 6.6 per cent increase in 2017 (RM67.8 billion).
Mr Anand Chelliah, tax partner at Baker Tilly Malaysia and its Asia-Pacific leader, warned against over-aggressive measures, as business operations could be disrupted.
"The business community should not be negatively impacted, As it is, business owners have got enough challenges. What they don't need is over-regulation and overzealous collection efforts," he was reported as saying by The Edge Financial Daily.