THE Federal Government revenue is projected to decrease by 14% to RM227.3 bil in 2020 from RM264.4 bil last year as a result of lower tax collection.
Total revenue is expected to be severely affected following the decline in business, trade and tourism receipts as the worldwide lockdown actions reduce global trade vibrancy and people’s mobility.
“Despite the impact of the COVID-19 pandemic and lower estimated average crude oil price of US$40 per barrel, tax collection continues to be the major contributor to federal government’s revenue with an estimated collection of RM153.3 bil or 67.4% to total revenue, albeit lower than the previous five-year average of 75.8%,” the Finance Ministry (MoF) said in its Fiscal Outlook and Federal Government Revenue Estimates 2021 report released today.
Consequently, MoF said, total revenue as a percentage to gross domestic product (GDP) is expected to be lower at 15.8%, of which tax revenue constitutes 10.6% while non-tax revenue represents 5.2%.
The report also shared that the direct tax, which amounts to 50.6% of the total revenue, is expected to decrease by 14.6% to RM115.1 bil (2019: RM134.7 bil).
Companies’ income tax, the major contributor to total revenue, is also estimated to be lower at RM59.4 bil (2019: RM63.7 bil), which is about a 21% shortfall from the original estimate of RM75.5 bil.
“Individual income tax is also anticipated to decline by 4% to RM35.9 bil with the main factors being retrenchment as well as salary reduction,” it said.
The ministry also noted that petroleum income tax (PITA) is forecast to decline significantly by 58.9% to RM8.5 bil from RM20.8 bil previously. This is due to lower oil price and demand.
Other direct tax collections, including stamp duty and Real Property Gains Tax (RPGT), are estimated to be lower at RM8.2 bil, following the exemptions announced in the economic stimulus packages.
Indirect tax, which constitutes 16.8% of total revenue, is estimated to decline by 19.4% to RM38.1 bil compared with the original estimate of RM47.3 bil, with all components expected to drop.
The sales and service tax (SST) is expected to be lower at RM24.5 bil (2019: RM27.7 bil) with sales tax collection projected to reduce by 21.4% to RM12.1 bil (2019: RM15.4 bil).
This is in line with the government’s initiative to provide tax exemptions for the purchase of locally assembled and fully imported passenger cars under the National Economic Recovery Plan (PENJANA) package.
Meanwhile, non-tax revenue is envisaged to register RM74 bil (2019: RM83.8 bil), largely contributed by higher dividends from Petronas amounting to RM34 bil, of which RM10 bil is a special payment mainly from its divestment exercise in 2019.
The government has received RM3.5 bil from Bank Negara Malaysia (BNM) and is expected to receive dividends amounting to RM2 bil from Khazanah Nasional Bhd.
In addition, a special payment of RM5 bil was received from the Retirement Fund (Incorporated) (KWAP) to partly finance the current year’s retirement charges. In contrast, receipts from licences and permits are estimated to decline by 8.7% to RM13.2 bil (2019: RM14.5 bil), mainly due to lower proceeds from petroleum royalty.
Petroleum-related revenue is forecast to decline by 40.3% to RM50 bil in 2020 (2019: RM83.8 bil) due to exclusion of special dividend for a tax refund as well as a reduction in PITA and royalty amounting to RM8.5 bil and RM4.2 bil respectively based on lower global crude oil prices.
Consequently, the share of petroleum-related revenue is also expected to decline from 31.7% in 2019 to 22% in 2020.
Given the significant impact of the economic slowdown, non-petroleum revenue is estimated to decrease by 1.8% to RM177.3 bil (2019: RM180.6 bil), cushioned by special payments from government entities.
As a percentage to GDP, non-petroleum revenue is projected to increase by 0.3 percentage point to 12.3% from the 2019 position (12%), according to MoF. – Nov 6, 2020
