No sign of major tax overhaul under 2022 budget, says financial group

 

CGS-CIMB expects targeted fiscal support to be extended to protect vulnerable segments of society and businesses in sectors worst-hit by the pandemic.

KUALA LUMPUR: The 2022 budget is expected to be a combination of a pro-growth and inclusive agenda to ensure a sustainable economic recovery from the Covid-19 crisis, a financial group said today.

In a note today, CGS-CIMB said the budget will focus on three objectives — protecting and driving the recovery of lives and livelihoods, rebuilding national resilience and catalysing reforms.

It said targeted fiscal support would be extended to protect vulnerable segments of society and businesses in sectors worst-hit by the pandemic, such as tourism and retail.

Fiscal spending would also be directed at strengthening the public health system, continuing the development of physical infrastructure and enhancing digital and technological infrastructure, implying that development expenditure would likely remain sizeable next year.

“That said, we expect high vaccination rates, economic reopening and targeted fiscal measures to mark the start of fiscal consolidation in 2022,” it said.

Given the need to sustain the economic recovery, there has been no indication of a major tax overhaul, such as the introduction of the goods and services tax (GST).

“We think the first hints of a GST plan may surface in a comprehensive report on Medium-Term Revenue Strategies, which is targeted to be published in 2022,” CGS-CIMB said.

It added that the government is looking to enhance tax revenue collection through increased tax compliance.

Measures under consideration include the implementation of a Special Voluntary Disclosure Programme for indirect taxes administered by the customs department, introduction of a tax compliance certificate (TCC) as a precondition for tenderers to participate in government procurement, and implementation of the tax identification number (TIN), as well as reviewing tax treatment to address revenue leakages.

Yesterday, the finance ministry issued its maiden pre-budget statement, providing an update on the nation’s fiscal performance in 2021 and a preliminary view of the direction for the 2022 budget that is scheduled to be tabled in Parliament on Oct 29, 2021.

For 2021, the finance ministry estimated the fiscal deficit to increase to 6.5%-7.0% of the gross domestic product, versus the initial target of 5.4%, led by tax revenue shortfall, continued fiscal support and a weaker-than-expected economic rebound due to the implementation of the movement control order.

The estimated target for tax revenue is RM162.1 billion – 12.3% lower than the initial target of RM174.4 billion.

Meanwhile, the direct fiscal injection under the four fiscal stimulus packages announced this year (Permai, Pemerkasa, Pemerkasa Plus and Pemulih) translates into increased Covid-19 funds of RM27 billion against RM17 billion previously.

The allocation for operating expenditure is reduced by 7.1% to RM219.6 billion, while development expenditure remains relatively steady at RM68.2 billion. - FMT