Federal government expects 3% growth in revenue in 2023

DESPITE a sluggish global economy in 2023, the federal government anticipates a 3% growth in estimated revenue, reaching RM303.2bil from the RM294.4bil collection in 2022.

Bank Negara in its Economic Outlook 2024 Report said this estimate, revised higher by 4% or RM11.7bil compared to the initial forecast of RM291.5bil, reflects the positive impact of increased tax revenue collection.

Tax revenue is anticipated to increase by 9.7% to RM229bil, constituting 12.4% of the gross domestic product (GDP), up from RM208.8bil in 2022.

This lift is attributed to improved income tax collection, measures outlined in Budget 2023 and continuous administrative initiatives to broaden the revenue base.

In contrast, non-tax revenue is expected to reach RM74.2bil, equivalent to 4% of GDP, marking a 13.3% decrease from the RM85.6bil recorded in 2022, primarily attributed to reduced returns from investment income.

In the fiscal landscape, direct tax is poised for a 12.7% surge to RM173bil, fuelled by robust corporate profitability, stable employment conditions and sustained wage growth.

Companies income tax is expected to remain as the largest contributor to direct tax collection, anticipated to increase by RM16.3bil or 19.8% to record RM98.4bil.

Likewise, individual income tax is estimated to surge by 17.6% to RM39.7bil, in line with the revision of the individual income tax rate announced in Budget 2023.

However, petroleum income tax is forecast to fall by 12.4% to RM20.5bil, in tandem with the expected moderation in global crude oil prices averaging at US$80 per barrel in 2023, compared to the US$100 per barrel in 2022.

Meanwhile, indirect tax is anticipated to see a modest increase of 1.3%, reaching RM56bil. Within this, sales and service tax is poised for a notable 9% expansion, totalling RM34.2bil, while excise duty is also expected to grow by 4.3%, amounting to RM13.1bil.

In contrast, both import duty and export duty are projected to decrease by 4.8% and 31.4%, settling at RM3bil and RM1.8bil, respectively.

Regarding non-tax revenue, investment income is expected to decline, influenced by an anticipated lower dividend receipt from Petroliam Nasional Bhd (PETRONAS), dropping to RM40bil from RM50bil in 2022 and from Bank Negara, decreasing to RM2.75bil from RM5bil in 2022.

Additionally, receipts from licences and permits are expected to amount to RM15.5bil compared to RM15.6bil in 2022, reflecting reduced proceeds from motor vehicle licences and levies on foreign workers.

Looking ahead, Bank Negara anticipates the federal government to experience a modest 1.5% growth in revenue, reaching RM307.6bil in 2024, driven by improved economic prospects.

Tax revenue, anticipated at RM243.6bil, is expected to continue as the primary contributor, constituting 79.2% of total revenue.This is supported by measures to broaden the tax base and enhance compliance.

Direct tax is projected to increase by 6.9% to RM185bil, while indirect tax collection is anticipated to rise by 4.7% to RM58.6bil.

Non-tax revenue, however, is estimated to decline by 13.8% to RM64bil, reflecting lower investment income, with anticipated PETRONAS dividend receipt further dropping to RM32bil.

The government is committed to boosting revenue, closing tax gaps and improving efficiency through various initiatives.

These initiatives includes optimising incentives and enhancing compliance, with a focus on transparency through medium-term revenue strategy and tax expenditure reporting.