Malaysia’s income options shrinking with oil price drop, think tank says

Datuk Dr Zakariah Abdul Rashid, Executive Director of Mier, speaks at a media briefing in Kuala Lumpur on January 27, 2016. — Picture by Saw Siow Feng
KUALA LUMPUR, Jan 27 — Malaysia has no viable options to increase its revenue base apart from improving tax collection as the prolonged oil price rout continues to hurt its key income source, the Malaysian Institute of Economic Research (Mier) said today.
Its director Datuk Dr Zakariah Abdul Rashid said the protracted oil price crisis coincidentally made the Goods and Services Tax (GST) a crucial revenue source but the Najib administration had already indicated its unwillingness to raise the levy, leaving no other options available.
“What other ways are there? Improving tax collection. I can’t think of any other source of revenue,” he told reporters when asked to comment on Putrajaya’s decision to fix the GST rate at 4 per cent.
Mier forecasted the country’s real gross domestic product to grow by 4.7 per cent, an optimistic outlook compared to Putrajaya’s revised forecast.
It predicted sectorial growth to contract throughout 2016 as the country grapples with severe economic headwinds following the unanticipated commodity-currency shocks and weaker global trade.
Zakariah said amid the downturn, the GST was a “blessing in disguise” as it provided a strong fiscal safeguard that acted as a “built-in” stabiliser for the economy.
The Customs Department collected over RM6 billion from GST as of June last year.
Last week, British bank HSBC Ltd said consumer confidence tumbled immediately after Putrajaya enforced GST on April 1 last year.
Private spending has yet to rebound despite the supposed savings made from the cheaper petrol price, the bank added.
Prime Minister Datuk Seri Najib Razak is scheduled to announce some revisions to the 2016 Budget tomorrow after oil price dropped below the US$30 (RM131) per barrel mark last week.
The Brent oil price rose slightly this week and traded just above US$30 a barrel in Asia today, state newswire Bernama reported at noon.
However, the World Bank has dialed down its forecast for the average price of oil this year to US$37 a barrel.
The government had last year announced Budget 2016 at RM267 billion, which was already RM7 billion lower than the sum for 2015.
Despite the planned revision, Najib said he intends to meet his previously stated spending reforms and remains committed to reduce the deficit to 3.1 per cent of GDP.