KUALA LUMPUR, Sept 8 (Bernama) -- Bursa Malaysia closed almost flat on Tuesday as buying interest rotated away from index heavyweights towards smaller-cap construction stocks, with sentiment affected by geopolitical uncertainty, said an analyst. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) eased 0.39 of a point to 1,714.40 from Monday’s close of 1,714.79. The benchmark index opened 1.65 points lower at 1,713.14 and moved between 1,710.44 and 1,714.50 throughout the trading session. The broader market was almost evenly balanced, with decliners leading gainers 548 to 546, while 598 counters were unchanged, 1,107 were untraded and 25 were suspended. Turnover expanded to 4.13 billion units valued at RM3.14 billion from 3.60 billion units valued at RM2.45 billion on Monday.
Malaysian Rating Corporation Bhd (MARC) estimates that a 10% reduction in RON95 fuel subsidies could narrow the fiscal deficit by approximately 0.2% of gross domestic product (GDP).
Key Takeaways:
Fiscal Deficit Impact:
- A 10% cut in RON95 fuel subsidies is projected to reduce the fiscal deficit by 0.2% of GDP.
- GDP growth and consumer spending are expected to support subsidy retargeting towards more beneficial welfare outcomes.
Subsidy Expenditure:
- Subsidies have increased significantly, from 4% of Malaysia’s operating expenditure in 2003 to 25% in 2023.
- Malaysia spent RM70.3 billion on subsidies in 2022, with fuel subsidies accounting for 74%.
Necessity of Subsidy Reform:
- MARC emphasizes the importance of ongoing fuel subsidy reform to better target disadvantaged groups in society.
- Rationalizing subsidies is crucial for capping government expenditure.
Tax Collection Efficiency:
- Improving tax compliance, especially for direct taxes, remains a challenge.
- The ongoing refinement of Malaysia’s e-invoicing system is expected to enhance indirect tax collection efficiency.
- Widening the catchment of the consumption tax is critical for fiscal sustainability. This can be achieved by expanding the goods covered under the existing sales and service tax, or by introducing a variant of the goods and services tax (GST) or a value-added tax (VAT).
Public Finance and Fiscal Responsibility Act 2023:
- The Act caps the fiscal deficit at 3% of GDP, with allowances for temporary deviations.
- The government aims to achieve this benchmark by 2026, which would help stabilize Malaysia’s debt levels and align the deficit with the global median.
MARC's analysis underscores the importance of subsidy rationalization and tax collection improvements in achieving fiscal sustainability and reducing Malaysia’s fiscal deficit.
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