Total revenue is expected to be severely affected following the decline in business, trade and tourism receipts as the worldwide lockdown actions reduce global trade vibrancy and people’s mobility.
“Despite the impact of the Covid-19 pandemic and lower estimated average crude oil price of US$40 per (RM165.20) barrel, tax collection continues to be the major contributor to the federal government’s revenue with an estimated collection of RM153.3 billion or 67.4% of total revenue, albeit lower than the previous five-year average of 75.8%,” the finance ministry said in its Fiscal Outlook and Federal Government Revenue Estimates 2021 report released today.
Consequently, the finance ministry said, total revenue as a percentage to gross domestic product (GDP) is expected to be lower at 15.8%, of which tax revenue constitutes 10.6% while non-tax revenue represents 5.2%.
The report also shared that the direct tax, which amounts to 50.6% of the total revenue, is expected to decrease by 14.6% to RM115.1 billion (2019: RM134.7 billion).
Companies’ income tax, the major contributor to total revenue, is also estimated to be lower at RM59.4 billion (2019: RM63.7 billion), which is about a 21% shortfall from the original estimate of RM75.5 billion.
“Individual income tax is also anticipated to decline by 4% to RM35.9 billion with the main factors being retrenchment as well as salary reduction,” it said.
The ministry also noted that petroleum income tax (Pita) is forecast to decline significantly by 58.9% to RM8.5 billion from RM20.8 billion previously. This is due to lower oil price and demand.
Other direct tax collections, including stamp duty and real property gains tax, are estimated to be lower at RM8.2 billion, following the exemptions announced in the economic stimulus packages earlier this year.
Indirect tax, which constitutes 16.8% of total revenue, is estimated to decline by 19.4% to RM38.1 billion compared with the original estimate of RM47.3 billion, with all components expected to drop.
Sales and service tax (SST) is expected to be lower at RM24.5 billion (2019: RM27.7 billion) with sales tax collection projected to reduce by 21.4% to RM12.1 billion (2019: RM15.4 billion).
This is in line with the government’s initiative to provide tax exemptions for the purchase of locally assembled and fully imported passenger cars under the National Economic Recovery Plan package.
Non-tax revenue
Meanwhile, non-tax revenue is envisaged to register RM74 billion (2019: RM83.8 billion), largely contributed by higher dividends from Petronas amounting to RM34 billion, of which RM10 billion is a special payment mainly from its divestment exercise in 2019.
The government has received RM3.5 billion from Bank Negara Malaysia and is expected to receive dividends amounting to RM2 billion from Khazanah Nasional Bhd.
In addition, a special payment of RM5 billion was received from the Retirement Fund (Incorporated) (KWAP) to partly finance the current year’s retirement charges. In contrast, receipts from licences and permits are estimated to decline by 8.7% to RM13.2 billion (2019: RM14.5 billion), mainly due to lower proceeds from petroleum royalty.
Petroleum-related revenue is forecast to decline by 40.3% to RM50 billion in 2020 (2019: RM83.8 billion), due to exclusion of special dividend for a tax refund as well as a reduction in Pita and royalty amounting to RM8.5 billion and RM4.2 billion respectively, based on lower global crude oil prices.
Consequently, the share of petroleum-related revenue is also expected to decline from 31.7% in 2019 to 22% in 2020.
Given the significant impact of the economic slowdown, non-petroleum revenue is estimated to decrease by 1.8% to RM177.3 billion (2019: RM180.6 billion), cushioned by special payments from government entities.
As a percentage to GDP, non-petroleum revenue is projected to increase by 0.3 percentage point to 12.3% from the 2019 position (12%), according to the finance ministry.