The appropriate degree of fiscal decentralization is, however, an important
issue in any restructuring of the fiscal system in general, and of the tax system in
For a summary of the steps taken to improve the financial performance of
the NFPEs, and of challenges for the 1990s, see Ministry of Finance ( 1989-1990,
Although analytically rigorous definition of direct and indirect taxes does
not exist, taxes on income and profits, estate duties, and payroll and property
taxes are conventionally included in direct taxes. Sales taxes and excise, import,
export, and stamp duties are included in indirect taxes.
The most current act concerning fiscal incentives is the Promotion of Investments Act of 1986. Available incentives and related information are summarized
in Ministry of Finance ( 1992-1993, pp. 311-336).
Even the performance of nontax revenue is largely dependent on the national oil company Petronas, which contributed about two-fifths of total nontax
revenue in 1987 ( Asher, 1989, p. 66
For an overview of income tax reform in the industrial countries, see Pechman
ASEAN was formed in 1967 and currently comprises six nations: Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand.
The extent to which additional revenue will need to be generated is dependent on the appropriate macroeconomic stance and other factors. A rough indication may be had from the following. During he 1986-1990 period, total expenditure was 31.0 percent of GDP and the overall budget deficit, 6.9 percent of GDP
(Table 5.2). Greater expenditure needs are likely to require expenditure at about
35 percent of GDP. If the overall budget deficit is to be stabilized at 5 percent of
GDP, then total revenue would have to be 30 percent of GDP, 5.9 percent higher
than the 1986-1990 average. If nontax and petroleum revenue is assumed to increase by 1.9 percent, nonoil tax revenue would need to generate additional revenue equal to 4 percent of GDP.
Appropriate restructuring and reform of property tax and land tax do
have the potential of generating additional revenue. But this would involve rearranging federal-state fiscal relations.
Asher, Mukul G., 1989. "Fiscal System and Practices in Malaysia," in
Mukul G. Asher
(ed.), Fiscal Systems and Practices in ASEAN: Trends, Impact and Evaluation. Singapore: Institute of Southeast Asian Studies.
Asher, Mukul G.,
Sidney C. Rolt,
Mohammed Ariff, and
Habibullah Khan, 1992. Fiscal Incentives and Economic Management in Indonesia, Malaysia and Singapore.
Singapore: Asian-Pacific Tax and Investment Centre.
Bank Negara Malaysia, Economics Department, 1989. Money and Banking in Malaysia, 3rd. edition. Kuala Lumpur: Bank Negara Malaysia.
Bird, R. M., 1987a. "A New Look at Indirect Taxation in Developing Countries." World Development, 15( 9), September, 1151-1161.