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SRI PUBLIC FINANCE REFORM
Dato’ Seri Ahmad Husni
Mohamad Hanadzlah
Minister of Finance II
A
fter the Asian Financial Crisis in 1998, the Government, weighed
down by the slower spending pattern of the private sector and dipping
investments, had to act quickly to prop up the Malaysian economy. In
1999 to 2009, the Government continued to play a greater role in generating
economic growth amid a lower expansion in activities of the private sector.
Since the launch of the New Economic Model in 2009 which aims to take Malaysia
towards high-income status by 2020 in a sustainable and inclusive manner,
followed by the implementation of the National Transformation Programme in
2010, the contribution of private sector investment to the Malaysia’s economic
growth registered an increase.
In the last four years, stronger growth in activities of the private sector has
given the Government more room in trimming deficit including amongst others,
reducing spending through measures such as subsidy rationalisation. The federal
budget deficit was reduced to 3.5 per cent of GDP in 2014, as compared to 3.9 per
cent in 2013.
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ETP ANNUAL REPORT 2014
PUBLIC FINANCE
REFORM
270
M
alaysia is also reducing its
reliance on oil-based revenue.
From a high of 41 per cent
in 2009, oil and gas contribution
now stands at 30 per cent of total
Government revenue, or RM66 billion.
The RM66 billion comprises PETRONAS
dividends amounting to RM29 billion
while the balance was mainly oil based
tax and royalties. However, in spite of
lower expenditure, the drop in Brent
crude oil prices beginning from July
2014, followed by a more rapid decline
in Sept 2014 to reach below US$60
per barrel at end December 2014
has impacted the Government’s total
revenue for the year.
2014 Daily Spot Price - Brent Crude Oil (US$ per barrel)
120
110
100
90
80
70
60
50
Jan
0
Jan 2, 201
4
1
Jan 6, 201
30, 4
Feb 201
4
1
Feb 3, 201
27, 4
Ma 20
r 1 14
Ma 3, 20
r 27 14
Apr , 201
4
1
Apr 0, 201
24, 4
Ma 20
y 0 14
Ma 8, 20
y 2 14
Jun 2, 201
4
0
Jun 5, 201
19, 4
Jul 201
4
0
Jul 3, 201
17, 4
Jul 201
4
3
Aug 1, 20
1 14
Aug 4, 20
2 14
Sep 8, 20
1 14
Sep 1, 20
2 14
Oct 5, 201
4
0
Oct 9, 201
23, 4
Nov 20
0 14
Nov 6, 20
2 14
Dec 0, 201
4
0
Dec 4, 201
18, 4
201
4
With GDP for 2014
growing at six per
cent compared to
the five to six per
cent forecast and
the removal of fuel
subsidies through
managed float
mechanism, the
fiscal deficit target
registered 3.5 per
cent deficit of GDP
for 2014. In 2014,
the fuel subsidy
bill (including
cash assistance)
amounted to
RM23.6 billion ,
or 2.2 per cent,
of GDP.
Source: U.S. Energy Information Administration
Exhibit 14.1
The Government’s largest fiscal
reconciliation target was achieved on
21 Nov 2014, when the Government
announced the managed float pricing
mechanism for RON 95 and diesel.
The new mechanism also allowed the
Government to unwind fuel subsidies
at the pump that had been in existence
for almost 16 years. The only subsidy
that remains is the super subsidy for
public transport and selected industries
including fisheries and river boats (for
rural areas). This move is expected to
save the Government about RM10.7
billion in 2015.
SRI PUBLIC FINANCE REFORM
2015 Outlook
With the rapid declining trend of crude
oil prices which barely stabilised to
around US$50 in December 2014,
coupled with the impact of the floods
at the end of the year, the Government
revised its 2015 Budget to strengthen
economic resilience and provide
assistance to the people and businesses.
The projection of GDP growth for 2015
has been revised to between 4.5 per cent
and 5.5 per cent.
The implementation of GST will see
the abolishment of the SST, resulting
in Government revenue forgone of
RM13.8 billion. With the expected
revenue forgone for exempted and
zero rated goods and services which
totals to RM3.8 billion, the gross
additional collection of GST only totals
to RM5.6 billion after deducting the
potential collection of SST and from the
exempted and zero rated list.
Come April 2015, the Government will
also implement the Goods and Services
Tax (GST) at six per cent, which will
increase Government revenue in the
long-term. The GST will replace the
sales tax and service tax (SST) currently
applied at 10 per cent and six per cent,
respectively.
Of the RM5.6 billion, a total of RM4.9
billion will be channeled back to the
rakyat through assistance programmes
such as Bantuan Rakyat 1Malaysia. The net
additional revenue from GST is RM690
million.
While the consumer-based GST will
broaden and improve Government
income in the long-term, the net effect in
2015 and its impact on the budget deficit
target for the year will be minimal.
In addition, the Government has also
decided to reduce the rate of personal
and corporate income tax as announced
during Budget 2015 to minimise the
inflationary impact which will be
caused by the GST. Among the tax
relief for individuals and households
is the lowering of the tax rate by
one to three per cent, excluding
some 300,000 taxpayers from
paying income tax. Taxpayers with
family and income of RM4,000 per
month will be exempted in 2015.
The corporate tax rate will also be
reduced by one per cent, in addition
to secretarial and tax filing fees being
allowed for deductions.
Meanwhile, the target date for
accrual accounting, which was first
mooted by the Government in 2010,
has been pushed from January 2015
to January 2016 due to the inability
of the system development vendor to
meet the deadline. The Government
is, however, serious in promoting
greater transparency in public sector
financial reporting and will ensure
that the new deadline are met.
2014 Key Performance Indicators
PUBLIC FINANCE REFORM SRI
KPI (Quantitative)
Achievement
No.
KPI
Target
(FY)
Actual
(YTD)
Method 1
%
1
Enhancement of tax administration
and compliance - Direct Tax (RM mil)
1,795
1,990
111
2
Enhancement of tax administration
and compliance - Indirect Tax (Royal
Malaysian Customs Department)
(RM mil)
110
159.64
145
3
Implementation of Accrual
Accounting Activities in 2014
100%
81.3%
81
•
•
•
Method 2
%
100
100
81
Method 3
• •
• •
1.0
1.0
•
0.5
•
more on next page
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ETP ANNUAL REPORT 2014
continued from previous page
PUBLIC FINANCE REFORM SRI
KPI (Quantitative)
Achievement
No.
KPI
Target
(FY)
Actual
(YTD)
Method 1
%
5
Eliminate Incompetent Suppliers/Service
Providers (depends on complaints
received)
100%
100%
100
6
Implementation of GST activities for
year 2014
100%
100%
100
107%
Method 2
Method 3
%
•
•
100
100
96%
•
•
1.0
1.0
•
•
90%
Exhibit 14.2
Method 1 Scoring is calculated by a simple comparison against set 2014 targets. The overall SRI composite
scoring is the average of all scores
Method 2 Scoring is calculated by dividing actual results against set 2014 targets with an added rule:
• If the scoring is less than 100%, score #2 is taken as the actual percentage
• If the scoring is equal or more than 100%, score #2 is taken as 100%. The overall SRI composite
scoring is the average of all scores
Method 3
Scoring is calculated by dividing actual results against set 2014 targets with an added rule:
• If the scoring is equal and less than 50%, score #3 is indicated as 0
• If the scoring is more than 50% and less than 100%, score #3 is indicated as 0.5
• If the scoring is equal or more than 100%, score #3 is indicated as 1
2014 KPI Analysis
The SRI surpassed its KPI targets for
2014 except for accrual accounting,
driven by initiatives such as GST
planning activities and revenue
collection. The achievement of targets
was broadly due to the implementation
of more efficient processes put in place
by the Government.
Notably, the Government collected
additional revenue through indirect tax
of RM159.64 million during the year,
surpassing a target of RM110 million.
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Direct tax revenue collection amounted
to RM1.99 billion as compared with the
target of RM1.80 billion. A key shortfall
in the SRI’s 2014 KPI targets arose in
the area of accrual accounting, as
external factors resulted in a delay in
its implementation.
Initiatives
Enhancement of Tax Administration
and Compliance (Direct Tax)
The Government collected RM1.99
billion in additional revenue through
direct tax collection in 2014 following the
widening of field audit and investigation
coverage as well as a widening of the
tax base, and improvement in efficiency
in tax submission and collection.
These initiatives were carried out
through the redeployment of audit
officers to specific targeted industries/
individuals and improvements in the
Inland Revenue Board of Malaysia’s
(IRBM) information technology
system.
SRI PUBLIC FINANCE REFORM
Enhancement of Tax Administration Eliminate Incompetent Suppliers/
and Compliance (Indirect Tax)
Service Providers
The collection of indirect tax saw
the Government gaining additional
revenue of RM159.64 million in 2014,
significantly exceeding a target of
RM110 million. This was achieved by
undertaking additional specific audits
on certain industries through the
enhancement of Custom Department’s
audit and enforcement. An additional
temporary team of auditors also helped
to generate the desired result.
Accrual Accounting
The target to achieve 100 per cent of
planned initiatives was not met due to
the inability of the system development
vendor to meet the timeline. A delay
in the implementation is therefore
imminent, although the Government
is committed to introducing the full
accrual accounting system by the end
of 2015, enabling it to meet its target of
launching the system in 2015. To date,
81 per cent of planned activities for the
implementation of accrual accounting
has been completed. Despite the
postponement of implementation date,
the Accountant General’s Department is
confident of launching the system for the
implementation of accrual accounting
starting January 2016, making it a
shorter implementation timeline as
compared with other countries which
took more than five years in preparing
for the implementation of accrual
accounting.
The Ministry of Finance (MoF)
considered all the complaints of
incompetent companies received
from Ministries and agencies on MoFregistered suppliers for Government
procurement. The complaints were due
to their unsatisfactory performance in
delivering the supplies/services. The
companies were given warning letters
or temporarily or permanently banned
from entering into any Government
procurement process.
Implementation of GST activities
for 2014
Following the announcement of GST
in 2013, the MoF completed all of its
planned activities for 2014 successfully,
which included tabling and passing the
GST Bill in Parliament, communication
as well as training programmes.
In 2014, MoF trained more than 250
skilled GST speakers and conducted
more than 1,400 programmes, talks
and visits on GST covering the public,
industries and Government. A total
more than 76,000 members of public
and 150,000 participants from business
participated in these programmes.
The MoF also reviewed the exemption
and zero rated list of goods and services,
identifying a larger number of items
which are to be exempted/zero rated
from GST. These include fruits, white
bread and wholemeal bread, coffee
and cocoa powder, tea dust, yellow
mee, kuey teow, meehoon, some 2,900
medicine brands to treat diseases such
as heart failure, diabetes, hypertension,
cancer and fertility treatment, reading
materials for students and newspapers.
Electricity usage of less than 300 units
(which is estimated to benefit 70 per
cent of households) and sale of RON95,
diesel and LPG will also be relieved
from GST payment.
Key Takeaways
The Government remains cognisant that
the success of public finance reform
requires support from the rakyat and
to achieve this, the Government will
continue to educate and engage the
public as it remains committed to fiscal
prudence.
Moving forward, the main challenge is
to ensure that the Goverment’s target
of achieving a balanced budget in 2020
is met. As part of the initiative, the
Government will reduce other subsidies
that distort the market, specifically
in the areas of used car imports, the
shipping industry and SME corporate
income tax incentives.
It should also be noted that the goal
of public finance reform is to utilise
Government funds more efficiently in
areas such as social safety nets for
the deserving, healthcare, education
and other critical infrastructure for
the rakyat.
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