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.

Highlights

  • 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.

Improving Tax Compliance and Administration

The Inland Revenue Board of Malaysia (IRBM) leads the Improving Tax Compliance and Administration initiative. Its efforts include:
  • Widening field audit and investigation coverage
  • Widening the tax base
  • Improving efficiency in tax submission and collection
Highlights

  • During the year, initiatives implemented by IRBM resulted in additional revenue collection of RM1.8 billion.

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
Highlights

  • 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.

Highlights

  • 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-based 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 2015.

The new policies have also been endorsed by the Government Accounting Standards Advisory Committee (GASAC), and include the general provisions, policies on the recognition, measurement and disclosure of Revenues, Expenses, Assets, Liabilities and Net Asset/Equity.

Highlights

  • 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.

2014/08/13
Status:
Economic Transformation Programme
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