KUALA LUMPUR (Sept 30): Malaysia could miss its own government revenue target this year amid a decrease in non-tax revenue income, BMI, a Fitch Solutions research unit, warned on Monday.

Revenue growth, as a percentage of economic output, may slow marginally this year to 15.1%, from 15.3% in 2023, despite increases in some tax rates, BMI noted. Lower crude oil prices, which may average US$81 per barrel this year, could lower petroleum-related income, the research house said.

“We highlight growing risks that the government could fall short of its revenue target this year,” BMI flagged.

The federal government’s revenue collection stood at 54.5% of the 2024 target, according to the latest data, despite an increase in the sales and services tax rate and introduction of capital gains tax on the sale of unlisted shares. That would be the lowest revenue collection in five years, BMI noted.

Malaysia has been trying to lower a long-running fiscal deficit that stretches back to the 1998 Asian Financial Crisis. This year, the government is targeting to narrow its budget gap as a proportion of gross domestic product (GDP) to 4.3% from 5% last year.

The government has been focusing most of its budget consolidation efforts on reining in its fiscal largesse. While economists have been calling for expanded coffers, past and current attempts have been primarily to contain the rising cost of living and avoid pressuring economic growth.

Earlier this month, Prime Minister Datuk Seri Anwar Ibrahim dismissed talk surrounding the re-introduction of the goods and services tax (GST), a multi-tier consumption tax.

“If history serves as an indication, we expect Anwar to exercise caution in reinstating the GST,” BMI said. The introduction of GST back contributed to the downfall of the then-prime minister Datuk Seri Najib Razak — an outcome we think Anwar will be mindful of avoiding given his low approval rating thus far.”

Still, Malaysia could be on track to meet its budget deficit target as expenditure is set to fall to 19.4% of gross domestic product from 20.3% in 2023, BMI said.

In the first seven months of the year, total spending reached 56.0% of the 2024 target and broadly in line with the five-year average of 55.0%, following removal of blanket diesel subsidies in June.

The government has been mostly mum on details of targeted subsidies for the widely-used RON95 petrol expected to follow suit, though “we expect the government to implement further subsidy rationalisation plans in order to meet their fiscal targets,” BMI added.