KUALA LUMPUR (May 17): The government may see a RM25.6 billion tax shortfall in 2018 with the Goods and Services Tax (GST) being reduced from 6% to zero per cent from June 1, said Maybank Investment Bank Research.

The government had targeted to collect RM43.8 billion worth of GST revenue this year under Budget 2018.

"The zero-rated GST implies GST revenue shortfall of RM25.6 billion on a simple pro-rated basis, equivalent to 1.8% of gross domestic product (GDP) deterioration in Budget deficit, which is targeted to be at 2.8% of GDP this year under Budget 2018," Maybank IB Research said in a report today.

The research firm sees the upside to Budget 2018’s oil-related revenue forecast of RM37.7 billion amid rising crude oil price as a mitigating factor to the shortfall.

The national Budget had assumed a 2018 Brent crude oil price of US$52 per barrel against year-to-date average of US$69 per barrel.

"Our sensitivity analysis is that every US$10 per barrel rise in annual average crude oil price will boost oil-related revenue by RM7 billion to RM8 billion," said Maybank IB Research.

It believes that another mitigating factor is the eventual reintroduction of the sales and services tax (SST), which had previously earned the government RM17.2 billion on a full year basis.

"Furthermore, the Budget deficit impact does not yet factor in potential low hanging fruits rationalisation in government spending to reduce wastages and leakages, as well as from efficiency gains," it added.

Maybank IB Research is of the view that the biggest beneficiary of the zero-rated GST will be the consumer-related sector.

"We expect an immediate upliftment in consumer sentiment, which has been subdued as reflected by MIER’s Consumer Sentiments Index which has remained below 100 points since the third quarter of 2014, that is, pre-GST implementation in April 2015.

"Earnings wise, this will be positive for consumer, automotive, gaming, aviation, property development, and banking and finance sectors via either higher/raised volume sales or margin expansion as businesses would no longer have to absorb the GST," it said.

The new Pakatan Harapan (PH)-led government had yesterday announced the zero-rating of the 6% GST effective June 1, which to Maybank IB Research was earlier than its expectation.

http://www.theedgemarkets.com/article/rm256b-tax-shortfall-expected-2018-says-maybank-ib-research