Malaysia To Reduce 2010 Budget Expenditure

by Mary Swire, Tax-News.com, Hong Kong

20 August 2009

The Malaysian government has confirmed plans to reduce its current expenditure in its 2010 budget in order to help reduce the budget deficit, which is expected to reach 7.6% of GDP this year.

The Second Finance Minister, Ahmad Husni Hanadzlah, is reported to have said that, while it expects Malaysia’s GDP to decrease by some 5% in the current year, a further tax or expenditure stimulus to the economy is not needed as the world economy begins to come out of recession.

Instead, it is felt, government current (but not its development) expenditure should be reduced to allow room in the economy for private consumers and investors, for a diversification of export markets, and for policies to increase foreign investment. There can therefore be expected to be a cut in government current expenditure of 15% in 2010, from the level of MYR160bn (USD45.2bn) seen in 2009.

The International Monetary Fund recently pointed out the need for Malaysia to proceed with subsidy reforms and to broaden its non-oil tax base – the latter by means of the introduction of a goods and services tax (GST). In that respect, it was said that the means-testing of fuel subsidies could be introduced early next year, while the government was looking again at the introduction of a GST.

There was no indication of a timescale for the implementation of a GST. In a situation where revenue from the oil and gas sector accounts for over 40% of total tax revenues, the government appreciates the need to diversify tax sources. However, the government has said that it does not want to increase prices and put, at this moment, any additional strains on general living standards.

The 2010 budget is expected to be presented next month.

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