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Free Malaysia Today
18-06-2025
- Business
- Free Malaysia Today
Fiscal reforms will boost social protection funding, says economist
The Sumbangan Asas Rahmah (SARA) programme is one of several government initiatives aimed at easing the burden on vulnerable groups. PETALING JAYA : Fiscal reforms, including the expansion of the sales and service tax (SST), will boost social spending and allow Putrajaya to deliver targeted aid to a wider population, says an economist. Madeline Berma, a senior fellow at Institut Masa Depan Malaysia, said the country would struggle to strengthen its social safety nets without the additional revenue. Malaysia is among the lowest tax-revenue collectors in Southeast Asia. Madeline said Malaysia's tax-to-gross domestic product (GDP) ratio stood at just 12.5% last year, well below the Organisation for Economic Co-operation and Development's average of 34.1%. Madeline Berma. 'Malaysia's inadequate social protection stems from several factors, including low tax revenue and income inequality. 'In terms of social spending as a percentage of GDP, Malaysia lags behind both high- and upper-middle-income countries,' she told FMT. 'Fiscal reforms – including increasing tax revenue – are vital to creating enough fiscal space to boost social spending and deliver more targeted assistance.' Madeline said the SST expansion, which kicks in on July 1, is projected to increase tax revenue by more than RM5 billion. She said this will allow Putrajaya to channel additional funds to direct cash assistance programmes, such as Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA). She also said the higher tax revenue could be used to finance improvements to infrastructure and public services, which would in turn raise productivity levels and help narrow the gap between the rich and poor. Such fiscal reforms, she added, could help resolve two major shortcomings in Malaysia's social protection system – insufficient coverage and inadequate benefits. 'This is especially relevant for informal workers and in addressing gaps in retirement, health and injury coverage,' she said. Treasury secretary-general Johan Mahmood Merican previously said the expansion of the SST was necessary to strengthen Malaysia's fiscal position by increasing revenue for better social protection – without burdening the majority of the population. He said the move was expected to benefit 5.4 million lower and middle-income Malaysians. On June 9, the finance ministry announced that essential goods would remain tax-exempt, while a 5% to 10% SST would apply to non-essential items such as king crab, salmon, truffle mushrooms and imported fruits. The scope of the service tax will also be widened to include rentals, leasing, construction, financial services, private healthcare and private education. However, public healthcare for Malaysians will remain SST-exempt. Addressing the potential impact of the expanded SST, Madeline acknowledged that some companies may pass on the increase in costs to consumers. However, she expects the impact to be minimal, since essential goods are not affected. Expand post-retirement protection Barjoyai Bardai. Meanwhile, economist Barjoyai Bardai proposed that workers who have contributed to the Social Security Organisation (PERKESO) for more than two years be eligible for protection after retirement, as part of a comprehensive long-term social protection plan. The academic at the Malaysian University of Science and Technology called for such contributors to be given a pension equivalent to half of their last drawn salary. He also suggested making contributions mandatory for micro, small and medium enterprise owners and self-employed individuals – including farmers, fishers and service providers – under a takaful scheme, to ensure effective protection.
Borneo Post
13-06-2025
- Business
- Borneo Post
Malaysia should reintroduce GST at rate that won't burden people, says economist
Datuk Dr Madeline Berma KUCHING (June 13): Malaysia should reintroduce the Goods and Services Tax (GST) because it will provide a 'sustainable and predictable source of revenue', said economist Datuk Dr Madeline Berma. The Institut Masa Depan Malaysia (Masa) fellow said GST is a broad-based value-added consumption tax that offers a transparent, efficient, and stable long-term revenue stream. 'Malaysia should consider reintroducing the GST but at a rate that would not burden the people,' she said when contacted. 'This will meet our growing development, spending needs, and strengthen fiscal resilience, while helping the country reduce its fiscal deficit and lower the government's debt ratio substantially.' On Putrajaya's expanded Sales and Service Tax (SST), which is scheduled to take effect in July, Madeline said it is 'less revenue-generating but more manageable for businesses and consumers'. She opined that the SST system is more targeted and fairer, giving greater focus on those who spend more for non-essential goods and services. 'It is expected to improve Malaysia's fiscal position through a more targeted tax approach on non-essential goods. 'The government's decision to focus on imposing taxes on luxury goods and non-essential items means that only the high-income earners would be directly affected. But the low- and middle-income will be affected indirectly, with the implementation of SST on six new categories of services,' she said. The services affected by the expanded SST are leasing and rental, construction, finance, private healthcare, education, and beauty. She pointed out SST will impact nearly all manufactured goods and services, where the tax on capital goods is expected to increase investment costs, delay business expansion, and dampen investment across key manufacturing and commercial sectors. The Federation of Malaysian Manufacturers has estimated that logistics, manufacturing, and retail businesses relying on rented premises could see annual costs increase from RM24,000 to RM60,000 per premises, which may be passed onto consumers or force businesses to scale back operations, she said. Madeline said with the expansion of the SST, government revenue is expected to rise from RM46.7 billion in 2024 to RM51.7 billion in 2025, creating the fiscal space for targeted subsidies or incentives. This could support further enhancements in public services, particularly in expanding cash assistance to the people and improving infrastructure and service delivery nationwide, she said. 'This measure forms part of the government's broader Madani economic framework aimed at 'raising the ceiling' and 'raising the floor' in its effort to strengthen Malaysia's social safety net and promoting targeted taxation without increasing the cost of living for the general public,' she added. GST lead Madeline Berma SST
Free Malaysia Today
22-05-2025
- Business
- Free Malaysia Today
Failure to curb subsidy leakages risks economic liabilities, says economist
An economist says public distrust of the government is fuelled by leakages, particularly when unqualified recipients benefit from government subsidies. PETALING JAYA : Subsidy leakages severely undermine economic efficiency and fiscal discipline, and if left unchecked, could result in significant liabilities, says an economist. Goh Lim Thye of Universiti Malaya said the short-term consequences of such leakages include direct revenue losses, weakened impact of fiscal transfers and a decline in credibility in public spending. 'In the long-run, these leakages create systemic distortions: they entrench rent-seeking behaviour, reduce incentives for energy efficiency, and delay the necessary shift towards a more targeted, sustainable subsidy framework. 'Without reform, subsidies risk becoming politically entrenched fiscal liabilities rather than tools for equitable development,' he told FMT. Another economist, Madeline Berma of Institut Masa Depan Malaysia, said leakages also fuel public distrust, particularly when unqualified recipients benefit from government subsidies. 'Subsidy leakages can also potentially exacerbate income inequality which also creates opportunities for corruption and rent-seeking behaviour,' she added. She said that while reforms have been implemented, Malaysia is still grappling with leakages and has yet to entirely eliminate them. However, she noted that the government's move to rationalise diesel subsidies in June last year had led to significant decrease in leakages. Earlier this month, the government ended price controls on eggs and reduced subsidies from 10 sen to 5 sen per egg, with full removal set for Aug 1. The agriculture and food security ministry said prolonged price controls and subsidies were unsustainable in the long term for both local egg producers and the country's fiscal health. It said rationalising subsidies was the fairer approach, as subsidies are currently also enjoyed by foreign nationals and high-income groups. 'By resetting the system and using technology to monitor eligible recipients, the government has saved RM7.5 billion without harming those genuinely in need of subsidised diesel,' said economist Geoffrey Williams. He said success in tackling leakages not only saves money for more meaningful public spending, but also eliminates the broader disadvantages of subsidy-related corruption. The funds saved could be redirected to for health services, education, and social protection, encouraging a return of public trust. 'It cuts out all the disadvantages of subsidies and removes market distortions, creating a more competitive, agile and efficient system,' he said.
