Expediting reforms will make tax hikes easier to swallow, govt told

Free Malaysia Today

4 hours ago

World Bank's lead economist for Malaysia, Apurva Sanghi, said reducing spending would not be easy as most of it involved 'rigid' costs such as wages, pensions and debt service.
PETALING JAYA : The World Bank's lead economist for Malaysia, Apurva Sanghi, says expediting reforms – such as enacting a government procurement law – will make the public less hostile towards tax hikes.
In a post on X on the expansion of the sales and service tax, Apurva pointed out that the auditor-general regularly uncovered losses in public funds, irregular payments and wastages across various ministries.
While some reforms have been carried out, a specific law to oversee government procurement has been delayed, he said.
Apurva said reforms would build public trust, which in turn would make it 'easier to swallow bitter tax hikes'.
'Tax hikes are painful but people can bear them, if they're meaningful.
'This means faster progress, especially on governance reforms and that would increase trust.'
Apurva said trust was the ultimate currency for any government.
On comparisons made between the SST and the goods and services tax, Apurva said that while both were regressive, it could be made progressive via targeted cash transfers and exemptions.
'The current SST expansion does include progressive elements.'
On June 9, the finance ministry announced that a 5% to 10% rate would be imposed on non-essential goods from July 1, although basic necessities would not be taxed. The announcement has triggered brickbats.
Apurva also responded to those questioning the government's decision to raise taxes instead of reducing spending.
He said while it was a fair question, the country needed to spend more, which meant it needed to raise more revenue.
The finance ministry previously said that the SST collection is expected to increase by RM5 billion in 2025 and by RM10 billion in 2026, following the expansion of its scope.
Apurva noted that both revenue and spending had dropped by 30% since 2012, which was well below those of global peers.
'Spending needs are only growing, especially as Malaysia ages,' he said, adding that reducing spending would not be easy as most of it involved 'rigid' costs such as wages, pensions and debt service which accounted for 57% of operation expenditure.