Malaysia on track to lower fiscal deficit in 2018, says Fitch Group unit
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KUALA LUMPUR, Dec 8 — International market analyst group BMI Research maintained today its forecast for Malaysia to lower its fiscal deficit from 3 per cent of the country’s Gross Domestic Product (GDP) this year.
The Fitch Group unit said the 2.8 per cent target is attainable, noting revenue from corporate, personal and consumption taxes is expected to grow by 6.4 per cent next year, will help support Putrajaya’s fiscal consolidation efforts.
The group further took note of the government’s plan to broaden the goods and services tax (GST) to cover a greater number of taxable items next year.
“We believe that the growing contribution of GST to overall revenue will continue to bode well for the government's ongoing fiscal consolidation efforts due to the tax's broad-based nature, which would help minimise the risk of tax evasion and revenue leakage,” it said in a statement.
BMI also said Malaysian business activity is "likely to remain strong" based on the Nikkei Malaysia Purchasing Managers' Index score of 52.0 last November, an increase from 48.6 in October.
It said manufacturing will gain a lift from new orders resulting in increased output and strengthening business confidence over the next 12 months.
It also said infrastructure will also get a boost from investments, and added that it anticipates higher corporate profits that will subsequently add to higher tax revenues for the government.
“As corporate taxes form more than a quarter of total tax revenues, we expect this to be positive for the government's revenues in 2018,” it said in a statement.
BMI said it expects personal income tax, which accounts for 15 per cent of the national fiscal revenue, to also go up next year.
“The positive economic outlook is likely to bode well for wages and accordingly, individual income tax revenues.
“As such, the increase in number of employed workers paying income taxes and prospect of higher wages should offset the negative impact of the income tax cuts in the 2018 Budget,” it said.
The group observed that year-on-year hiring activity has been trending upwards since September, growing by 2.1 per cent compared to 1.4 per cent year-on-year in August.
It said companies with higher profit would likely reward its loyal employees, and this will provide an impetus for higher disposable household income.
It added that higher household spending and the government's move to tax foreign digital companies with a permanent establishment in Malaysia under the GST from next year onwards will help raise its revenue.