Malaysia Budget continues fiscal consolidation, GST to be revenue-neutral

SINGAPORE - Standard & Poor's says Malaysia's proposed 2015 budget supports its view that the Government remains committed to its fiscal consolidation plans. The budget targets a deficit of 3% of GDP for 2015, down from 3.5% in 2014 and 3.9% in 2013.

The goods and services tax (GST) scheduled for 2015 will be largely
revenue-neutral in its early stages of implementation, the ratings agency says. “With a wide array of goods exempted, abolition of the current sales tax, and handouts to offset the effects of the GST, the Government estimates net revenue collection to be only MR690 million (less than 0.1% of GDP in 2015),” S&P says.

“A planned reduction in subsidies and cash handouts by 7% is encouraging, in our view. Further significant subsidy reforms will be crucial in supporting Malaysia to reach its goal to balance the fiscal position by 2020.

“Although the budget promises reforms to the petroleum subsidy system, it did not mention specifics. The Government marginally rolled back petroleum subsidies a few weeks ago, but how it will navigate this politically- sensitive issue remains to be seen.” www.standardandpoors.com (ATI).