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


To ensure the best outcome and impact on the country, this list of initiatives will be reviewed and enhanced periodically depending on the prevailing economic environment.

Highlights

  • The Widening E-bidding initiative, implemented in April 2011, allowed the Government to achieve total cost savings of RM26.01 million as at 31 December 2012.
  • The total value of e-Bidding completed during the year reached RM150.88 million.
  • The Ministry of Finance (MoF) commenced the development of a capacity-building programme for procurement officers. The National Institute of Public Administration (INTAN)/Public Service Department (JPA), Department of Works (JKR)/Ministry of Works (KKR) and other core Ministries are also developing a new training programme to ensure procurement officers are equipped with the necessary knowledge and skills related to procurement of goods and services.

Improving Tax Compliance and Administration

Inland Revenue Board of Malaysia

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, IRBM collected additional revenue of RM1.79 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 recorded additional tax collection of RM244.72 million, 47% higher than the RM166 million targeted for collection 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

  • 73 awareness and training programmes on the GST were conducted, which involved 7,491 participants.

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

  • Nine Malaysia Public Sector Accounting Standards (MPSASs), which are based on International Public Sector Accounting Standards, were drafted and endorsed by GASAC. Two MPSASs have been approved by the Accrual Accounting Steering Committee.
  • To prepare and educate officers on the standards and policies required for accrual accounting, comprehensive capacity building programmes were developed for all staff in Ministries.
  • During the year, current business processes of all modules in the Government Financial Management and Accounting System (GFMAS) were also reviewed and new business requirements identified.

2013/08/02
Status:
Economic Transformation Programme
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