Putrajaya limits new taxes, turns to Petronas to cover GST hole

BUDGET 2019 | Putrajaya will not be introducing major new taxes under Budget 2019 despite a reduction in revenue due to the abolition of the Goods and Services Tax (GST).

There were some measures such as the introduction of a sugar tax and an increase in gambling licence, none of which can significantly increase government revenue.

Instead, Putrajaya will seek to significantly boost its non-tax revenue from government-linked investment companies, particularly Petronas, to cover the shortfall.

Under Budget 2018, the then BN government had estimated that 22.8 percent of its revenue will come from indirect taxes, which includes GST.

The new Pakatan Harapan government estimates that only 13.1 percent of its revenue will now come from indirect taxes.

The Sales and Services Tax (SST), which also falls under the indirect taxes category, is expected to only generate RM22 billion in revenue in 2019.

The BN government had expected to collect RM43.8 billion under Budget 2018 with GST being in force for the whole year. The expected shortfall as a result of the abolition of GST is at least RM20.7 billion for 2019.

The country is now expected to collect RM23.1 billion for 2018, which includes a combination of GST until June, the subsequent tax holiday period, and SST from September onwards.

Putrajaya will seek to substantially boost its non-tax revenue to 27.2 percent under Budget 2019. In contrast, non-tax revenue only comprise 17.2 percent of revenue under Budget 2018.

The Harapan government expects the bulk of non-tax revenue to come from GLICs under the "investment income" category.

Under Budget 2018, the BN government had expected investment income of RM24.588 billion. The Harapan government now expects RM36.937 billion this year and RM59.523 billion in 2019.

"The bulk of the return on investments is dividend from Petronas amounting to RM54 billion, of which RM30 billion is a special dividend from Petronas which will be utilised to pay the outstanding (GST) tax refund.

"The source to fund the special dividend will be from the accumulated retained earnings of Petronas.

"The usage of the earnings will not affect the funding of their current investment activities as the fund for the activities has been accounted in their capital expenditure plan," said the Fiscal Outlook and Federal Government Revenue Estimates. - Mkini