KUALA LUMPUR (Jan 25): CIMB Investment Bank Bhd said it was crucial for Malaysian policy makers to look for other non-tax revenue sources to mitigate the impact of cheaper crude oil on government income.   

In note ahead of the nation's Budget 2016 revision announcement this Thursday (Jan 28), CIMB said the government might readjust its crude oil price assumption to US$30 a barrel from US$48. CIMB said the US$30 assumption implied a revenue shortfall of RM5 billion to RM6 billion.
 
"The government should start planning for the medium-to-long term to reduce further its reliance on oil-related revenue. The government’s medium-term fiscal framework shows that average oil-related revenue for 2017-2018 is about the same as that projected for 2016.

"That may see budget planning continue to be subjected to variability in oil prices and revisions. As a result, there will be sustained use of short-term gap measures, which could distract the government from delivering meaningful fiscal consolidation going forward," CIMB said.

According to CIMB, Petroliam Nasional Bhd's (Petronas) planned RM16 billion dividend to the government was already secured for the year. As such, the spotlight will be on petroleum income tax to reflect crude oil price changes.

CIMB said oil-related revenue was expected to constitute some 13.8% of government revenue this year versus 19.7% in 2015.

"At US$30 per barrel for oil, the revenue shortfall is estimated to be RM5 billion - RM 6 billion and the share is expected to shrink further to 12.9%," CIMB said.

Prime Minister Datuk Seri Najib Tun Razak said via najibrazak.com that Malaysia was not spared from current economic challenges amid lower crude oil prices, which would have an impact on the country's income.

Najib said crude oil at below US$30 a barrel had prompted countries to reassess their economic growth forecast. "I am confident Malaysia can weather the economic challenges. The government will ensure the country's economic growth stays strong with people-centric planning," he said.