MOF — The government expects to generate an additional RM5 billion from the upcoming SST this year, and RM10 billion from 2026 onwards. (Bernama pic)

PETALING JAYA:

The government needs to plug inefficiencies in its departments and agencies to ensure the additional RM10 billion in yearly revenue expected from an expansion of the sales and service tax (SST) regime is spent wisely, an economist said.

Ahmed Razman Abdul Latiff of Putra Business School said the government is currently prioritising procurement reform by introducing an open tender system to replace direct negotiations.

He said the open tender system offers a more structured approach which is essential to prevent wastage in public spending.

“Reforms to the procurement system are vital if we want to discourage graft and ensure that the additional RM10 billion in revenue earned from the expanded SST is not dissipated.

“Statistics show that a majority of cases involving wastage, leakages and corruption stem from a weak procurement system,” he told FMT.

In a recent interview with FMT, Treasury secretary-general Johan Mahmood Merican said the government was in the midst of reforming the procurement system to ensure revenue is spent optimally and to curb leakages.

Johan said the government was expected to generate an additional RM5 billion this year from the SST expansion which kicks in next month. The SST is expected to generate RM10 billion annually beginning next year.

Earlier this month, the finance ministry announced that a 5% to 10% rate will be imposed on non-essential goods from July 1, including rent, lease, construction, financial services, private healthcare and education.

However, basic necessities will retain its tax exempt status.

With the expansion, the government expects the SST to generate RM51.7 billion in revenue this year.

Separately, Bank Muamalat Malaysia Bhd chief economist Afzanizam Rashid said the procurement reforms, being implemented alongside the SST, would help narrow the country’s fiscal deficit.

He said the dual initiatives would broaden fiscal space, enabling the government to enhance social assistance and allocate more funds for infrastructure development.

Afzanizam said the increase in service tax to 8% in March last year bumped up SST collection by 30.3% in the first quarter of this year. Meanwhile, the implementation of targeted diesel subsidies has reduced spending on subsidies and social aid by 19.4%.

“The increased tax collection and reduced spending saw the fiscal deficit drop to 4.5% of the gross domestic product for the first quarter of 2024.

“This has allowed the government to increase aid for its Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) programmes to RM13 billion this year, up from RM10 billion in 2024.”

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Plug leakages to ensure SST income not squandered, govt told

Ahmed Razman Abdul Latiff of Putra Business School says one way to reduce inefficiencies is to replace direct negotiations with an open tender system.