KUALA LUMPUR, July 18 — Malaysian Rating Corporation Bhd (MARC) estimates that a 10 per cent decrease in RON95 fuel subsidies could narrow the fiscal deficit by around 0.2 per cent of the gross domestic product (GDP).
In a statement today, it said the GDP growth and consumer spending should also facilitate subsidy retargeting for beneficial welfare outcomes, as indicated by encouraging signs in the labour market.
“Rationalising subsidies remains a key factor in capping government expenditure, as subsidies have increased as a share of Malaysia’s operating expenditure from 4 per cent in 2003 to 25 per cent in 2023,” it said.
In 2022, MARC said, Malaysia spent RM70.3 billion on subsidies, with fuel subsidies making up 74 per cent.
“Consequently, ongoing fuel subsidy reforms remain absolutely necessary, alongside the ongoing review of various subsidies such that the monies allocated are better targeted at disadvantaged groups in society,” it noted.
The firm said while tax compliance remains a challenge, especially for direct taxes, Malaysia’s ongoing refinement of the e-invoicing system should enhance the efficiency of indirect tax collection.
“Overall, widening the catchment of consumption tax is critical for fiscal sustainability, and this can be implemented with a wider basket of goods for the existing sales and services tax or introducing a variant of the goods and services tax, or value-added tax,” it said.
It said Malaysia’s Public Finance and Fiscal Responsibility Act 2023 caps fiscal deficit at 3 per cent of the GDP while allowing for temporary deviations.
“The government aims to achieve this benchmark by 2026, which, if successful, would stabilise Malaysia’s elevated debt levels and align the deficit with the global median,” it added.
— Bernama
