Public Finance Reform (PFR)
Supporting Policies

Public Finance Reform (PFR)

The Public Finance Reform Strategic Reform Initiative (SRI) is aimed at strengthening the Government’s finances to ensure stability and sustainability of public funds. Through this SRI, the Government has targeted to achieve a Federal Government budget deficit of around 3% by 2015 and near budget neutral by 2020. This is in line with objectives identified by the National Economic Advisory Council (NEAC) in the New Economic Model (NEM).

The NEAC recommended four fiscal policy measures to address public finance reform. The measures are:
  • Adopt accrual accounting for prudent fiscal management
  • Implement efficient broad-based tax for revenue and fiscal stability
  • Strengthen expenditure control
  • Improve fiscal policy institution and processes

During the Public Finance Reform lab, the measures were clustered and brought down to a three-foot, implementation-ready level encompassing 21 initiatives.

The initiatives were also supplemented with two individual initiatives: the enabler accrual accounting system and broad-based tax, i.e. value-added tax. It is envisioned that broad-based tax will replace the current sales and service taxation system.

The list of the initiatives implemented from 2011 and to be carried out through to 2014 is as follows:
List of Initiatives
A. Improve Tax Compliance and Administration
  1. Widen Field Audit and Investigation Coverage
  2. Widening the Tax Base
  3. Improving Efficiency in Tax Submission and Tax Collection
  4. Revise depreciation rate of gazetted value of imported used cars (downwards by 10%)
  5. Audit-based control on exporters and importers of liquor and cigarette in duty free islands and Free Commercial Zone
  6. Enhanced Customs’ enforcement/audit
B. Rationalisation of Corporate Tax Incentives
  1. ‘Step-down’ (From Full to Partial) Exemption for Shipping Income
  2. Review incentives in Promotion of Investments Act 1986
  3. Review Single Deduction, Further Deduction, Double Deduction
  4. Step-down’ of Reinvestment Allowances
C. Expenditure Control
  1. Increase cess for rubber replanting
  2. Cost effective funding mechanism (for public funded universities)
  3. Optimise asset utilisation (for public funded universities)
  4. Reduce Govt. travelling expenses by 15%
D. Transparent Procurement
  1. Widening E-bidding scope - reducing threshold value from RM200k to RM50k for the procurement of good & services
  2. Enforce Procurement Plan
  3. Eliminate Incompetent Suppliers/Service Providers
  4. Capacity Building (Certified training course for procurement officers)
  5. Value Management (VM)
E. Other Initiatives
  1. Broad-Based Tax (GST)
  2. Accrual Accounting

Transparent Procurement

Malaysia has pledged greater transparency measures in procuring goods, works and services to strengthen accountability to taxpayers, by adopting an e-procurement system. Information about tender notices, quotations and results are provided on portals such as E-perolehan, MyProcurement, NeTI and e-Perunding, ensuring greater transparency and cost-effective tendering.


  • The widening E-bidding initiative implemented in April 2011, allowed the Government of achieve total cost savings of RM20.99 million in 2013.
  • Total value of e-Bidding during the year reached RM135.7 million.

Enhancement of tax administration and compliance (direct tax)


  • The Government collected RM1.99 billion in additional revenue through direct tax collection in 2014 following the widening of field audit and investigation coverage as well as a widening of the tax base, and improvement in efficiency in tax submission and collection.

Enhancement of tax administration and compliance (indirect tax)


  • The collection of indirect tax saw the Government gaining additional revenue of RM159.64 million in 2014, exceeding a target of RM110 million. This was achieved by undergoing specific audits on certain industries through the enhancement of the Customs Department’s audit and enforcement.

Royal Malaysian Customs Department

The Royal Malaysian Customs Department (RMCD) has been tasked with implementing initiatives to improve tax administration and compliance for indirect tax collection. These efforts comprise:
  • Audit-based control on exporters and importers of liquor and cigarette in duty free islands and Free Commercial Zones
  • Enhanced Customs enforcement/audit

  • RMCD surpassed collection target of RM100 million, with a total tax collection of RM125.02 million during the year.

Broad-based Tax

A broad-based consumption tax, the Goods and Services Tax (GST) will be levied on “value-added activities” along the delivery chain. However, most basic products and services such as rice, raw meat, fresh fish, vegetables, domestic public transportation and healthcare services will be tax exempt or zero-rated. The estimated additional revenue from implementing the GST in its first two years is between RM0-8 billion, depending on the expected implementation rate of 4-5%. Revenue neutral is expected for GST at 4%.

The Government will continue engaging with the public sector, business community and rakyat to ensure the GST initiative will be accepted and can be implemented smoothly.


  • To increase public awareness and boost general acceptance of the GST, the Government undertook measures including public consultations and seminars with consumer associations, increase publicity on GST through mainstream and new media, and provide information for consumers on the GST portal.

Target Group No. of programmes No. of participants
Government 26 2,739
Industry 43 4,428
Consumers 4 324
TOTAL 73 7,491

Accrual Accounting

The Accrual Accounting Steering Committee has approved new accrual-based accounting policies drafted for the development of the new accrual-based accounting system scheduled for implementation in 2016.


  • 20 Malaysia Public Sector Accounting Standards (MPSAS) were approved by GASAC as at December 2013, while 11 MPSAS were approved by the Accrual Accounting Steering Committee.
  • In preparation for the implementation of accrual-based accounting in 2015, a Change Management Plan was disseminated in April 2013 to ensure parties involved in the process understood the new systems and are committed to the implementation of the new accounting system.
  • Data collection of opening balances of assets and liabilities in all Ministries and respective agencies began in April 2013.
  • The Public Service Department approved the establishment of Self-Accounting Department at 15 Ministries, creating a total of 300 new jobs under this measure.

Implementation of GST activities

The Accrual Accounting Steering Committee has approved new accrual-based accounting policies drafted for the development of the new accrual-based accounting system scheduled for implementation in 2016.


  • In 2014, the Ministry of Finance trained more than 250 skilled GST speakers and conducted more than 1,400 programmes, talks and visits on GST covering the public, industries and Government. More than 76,000 members of public and 150,000 participants from business took part in these programmes.
  • MoF also reviewed the exemption and zero rated list of goods and services, identifying a larger number of items which are to be exempted or zero rated from GST.
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