IN its first budget, the Pakatan Harapan government is expected to introduce new and higher taxes on several goods and services to plug revenue shortfall and stabilise the country’s fiscal position, said analysts.

The new taxes are aimed at recouping the loss of revenue when the goods and services tax (GST) was replaced with the sales and services tax (SST) in September, said Socio-economic Research Centre executive director Lee Heng Guie.

“The much talked about new taxes are soda tax to promote a healthy lifestyle and higher stamp duties for the purchase of property by foreigners,” said Lee.

According to Bank Negara Malaysia, revenue collection for the first half of this year was around RM106.8 billion compared with RM97 billion for the same period last year.

However, the projected full year GST collection for 2018 was RM43.8 billion compared with the newly revised estimation of RM24.8 billion, marking a loss of some RM19 billion.

Lee is also expecting higher duties, or sin taxes, for tobacco and alcohol although he said higher taxes would also encourage more smuggling.

The government could also introduce the digital tax, capital gains tax and bring back the inheritance tax, which was repealed in 1991, said AllianceDBS Research’s Manokaran Mottain.

Under the inheritance tax, a 5% rate was imposed for estates worth between RM2 million and RM4 million, and 10% on estates worth RM4 million and above.

Manokaran said the government may also raise personal taxes for the higher-income T20 group to reduce the inequality among Malaysians.

In 2016, the median income for the T20 was at RM13,148 (2014: RM11,610), compared with the B40 median income of only RM3,000 (22.8% of T20 income). The T20 category makes up 46.2% of Malaysia’s total income.

“If the government were to increase the tax rates for the T20 household group by 0.5% for each T20 category, the government is likely to gain marginal additional income tax revenue of RM700 million,” said Manokaran.

As of 2018, the tax rates for individuals earning above RM12,500 per month (T20 category) are 24.5%, 25%, 26% and 28%.

Cash aid revamp

Analysts have also predicted that the Budget 2019, which will be announced by Finance Minister Lim Guan Eng on Friday, will be a smaller budget compared with its predecessor, as the government seeks to trim expenses.

As part of cutting back on public spending, Putrajaya would likely revamp the cost of living aid, previously known as BR1M, they said.

Manokaran said while the government will maintain cash aid, it will focus on increasing productivity levels to help the B40 income groups move up the income ladder.

“We expect the government to save up to RM3 billion in handouts if it can successfully narrow the scope of recipients and reduce the numbers,” he said.

Lee said he also expects the government to revamp fuel subsidies along with the cost of living aid, and to provide some personal tax relief for middle-income households.

While the government has already postponed several mega-projects, Lee said, domestic growth will not be affected.

“Though the deferment of some major projects would dampen the growth of construction sector, the manufacturing and services sectors are expected to hold up overall economic growth estimated 4.8% in 2018 and 4.7% in 2019 respectively.” – October 31, 2018.