PUTRAJAYA appears to be quite optimistic in setting a revenue target of RM236.9 billion for 2021 in view of the challenging economic conditions and projected lower dividend payouts from government-linked entities, said analysts.

They said the forecast must be based on the government’s optimism for a strong economic rebound that will result in higher tax revenue.

Putrajaya is expecting its tax revenue to increase to RM174.37 billion next year from the estimated RM153.26 billion for 2020. Of this, RM131.87 billion will be in the form of direct taxes while indirect taxes will amount to RM42.5 billion.

However, non-tax revenue is expected to fall to RM62.53 billion from the estimated RM74.01 billion this year.

Executive director of the Socio-Economic Research Centre, Lee Heng Guie, said the figure projected by the government depended on unemployment and pay cuts.

“I think it is quite odd because of the number of job losses this year and I don’t think those who are unemployed could get new jobs so fast. Of course, the government thinks it could create 500,000 jobs next year through Jana Kerja,” the economist told The Malaysian Insight.

“This is a target but we will have to see whether they can deliver (or not),” he added.

According to Putrajaya’s estimates, personal income tax collection for next year is expected to amount to RM42.44 billion (RM35.90 billion in 2020) while corporate taxes will rake in RM64.69 billion (RM59.38 billion in 2020).

Lee, however, said the government could be banking on indirect taxes such as the sales and services tax to attain its revenue target.

“They expect consumer spending to drive economic recovery with all the money given out in Budget 2021. People will spend more with the reduction in EPF contributions and Bantuan Prihatin Rakyat. The government hopes that will spur consumption and the sales tax (collection) will be more,” he explained.

“Service tax will depend on hotels and tourism. This will take a longer time to recover as long as borders are closed,” he added, referring to the tourism industry, which is among the worst-hit sectors.

He said previous experience has also shown that the actual revenue collection always turned out to be lower than the budget estimates.

Lee also drew attention to non-tax revenue, which the government had projected from lower dividend payouts from Petronas and Khazanah Nasional Bhd.

Dividend from national oil company Petronas to its sole shareholder, the government of Malaysia, for 2020 is expected to be to the tune of RM34 billion.

But the dividend payout from the oil and gas giant is projected to be much lower next year at RM18 billion.

Similarly, sovereign wealth fund Khazanah which is expected to pay RM2 billion this year is projected to pay half the amount as dividend for 2021.

The government is also expecting a higher return from its investments in Malaysia and overseas, the Treasury’s 2021 Fiscal Outlook report revealed.

Return of investment from overseas, which is projected to amount to RM12.80 billion in 2020, is expected to increase by more than two folds to RM36.77 billion in 2021.

The return of investments from internal investments, on the other hand, is expected to almost double to RM14.04 billion from RM7.27 billion.

Going after defaulters

Putrajaya is also expecting higher income from fines and penalties which are expected to increase from RM1.01 billion to RM1.36 billion.

K-Konsult Taxation Sdn Bhd managing partner Koong Lin Loong, however, said it is quite likely that the government will miss its revenue target.

The projection for direct taxes, which comprises income, corporate and petroleum taxes, was too high since businesses are in the stage of recovery and many are still struggling to weather the challenging economic conditions, he said.

Additionally, loss-making businesses may not be in the position to pay taxes.

The tax expert also said the discovery of a vaccine for Covid-19 will also have an impact on the fulfillment of the target.

“I feel this projection is very challenging. In 2017 direct taxes were only at 53% of the total revenue and in 2018 it was 56% . 

“It then dropped to 51% in 2020 due to the challenging global economic conditions and then now it is projected to drop further to 50% in 2020,” he explained.

“What makes the government feel that it will become 55.7% in 2021? This is an increase of 5%. I feel it is very challenging,” he said.

He said there isn’t much to expect from indirect taxes which usually accounts for 17%-18% of total federal revenue.

Koong said the year 2017 was an exception whereby revenue from indirect taxes rose to nearly 30%, almost two years into the implementation of the goods and services tax.

However, the same cannot be expected with the SST, which has a narrower scope than GST, he added.

Koong believed that the government will step up enforcement against tax and excise duties evaders, and will look into the shadow economy to recoup losses in tax revenue.

“We know that the shadow economy accounts for 21% of our GDP. This is a huge sum. So I think they want to recover some from here, especially black money or unreported income.” – November 9, 2020.