The ultimate goal of MADANI Economy is to improve the standard of living of the people and develop the national economy.
Prime Minister Datuk Ser Anwar Ibrahim, expressed in the Dewan Rakyat today (Mar 26), that however, this desire must be achieved with a responsible and sustainable approach. Considering the Government has inherited a challenging debt and fiscal position, fiscal reforms need to be implemented.
“These reforms have begun to be implemented with a focus on reducing expenditure leakage as well as expanding revenue progressively. This is to create fiscal space that can be spent for the benefit of many, towards improving the quality of life of the people.
The Prime Minister said this in reply to a question on the impact towards the people on the cost of living and cost of industrial production as a result of the service tax (SST) increase from 6% to 8% and what was the projected additional national revenue collection on implementation of all the new tax measures for the year 2024, raised by Dato’ Indera Mohd Shahar Abdullah [Paya Besar].
Anwar said Government spending should be distributed equitably but bulk subsidies benefit large-scale industries and high-income households more. For example, the electricity subsidy, when given in bulk in 2022, the 10 percent of the largest commercial and domestic users reap almost half of the electricity subsidy expenditure.
“In 2023, the MADANI Government retargets subsidies by reducing subsidies for the largest commercial and domestic users. As a result, we managed to achieve savings of over 4 billion ringgit and at the same time maintained the electricity tariff rate for 85 percent of consumers,” adding , the same approach is used in drafting taxation reforms.
The government takes a progressive approach which is to focus on increasing tax revenue from those who are more able and ensure that the majority of the people are not burdened. For example, the introduction of Capital Gains Tax (CGT) applies only to companies on the disposal of unlisted shares.
CGT, which is expected to generate 800 million ringgit, is a progressive tax. CGT is not imposed on the people and has no direct impact on the cost of living.
The increase in the service tax rate from 6 percent to 8 percent which will come into effect from 1 March 2024 focuses more on activities related to discretionary services and activities between businesses that do not directly involve the people.
Expenditure on food and beverages and telecommunications are not increased and remain at a rate of 6 percent. Utility expenses such as water and petrol, remain exempt from service or sales tax. Anwar said.
He added the government has also taken measures to reduce the incidence of double taxation such as for the logistics sector. Such measures reflect the Government’s progressive approach, which is that although the revenue base is expanded, it is balanced by taking into account the interests of the majority of the people.
Changes to the service tax policy, especially the increase in the service tax rate, did not have a significant impact on inflation with an estimate of around 0.2 percentage points.
This is due to: (i) Policy changes only involve service tax; and the sales tax remains with the existing tax scope and rate;
(ii) The scope of service tax is small which is only above 41 percent of the number of services available in the economy. The number of service providers is also small, around 60,000 entities registered with the Royal Malaysian Customs Department.
(iii) The change in the service tax rate from 6 percent to 8 percent does not involve services that are basic needs and part of the people’s lifestyle such as food and beverages, telecommunications and vehicle parking. Logistics services are also subject to a 6 percent tax rate.
(iv) Various basic services are not subject to service tax such as education; health; land and sea passenger transport; air passenger transportation for Rural Air Services in Sabah and Sarawak; prepaid telecommunications to citizens; food delivery; water supply; electricity supply below 600kWh for residential houses; and electricity supply to business premises.
Through the expansion of the scope and change in the service tax rate, the Government expects to collect revenue amounting to RM3 billion.
