PUBLIC FINANCE

REFORM IN
MALAYSIA:
ISSUES AND
CHALLENGES
AFIFAH BINTI HAMIZAN
I15200667
BACHELOR OF ACCOUNTING

Implementation Implementation Recommendations Conclusion

Accrual of Good and Fiscal
Accounting Services Tax Sustainability

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 INTRODUCTION

In 1981, Malaysia public reform started. Then

2010, Malaysia become fully developed
nation and high income economy has
begun.
On 5 July 2011, Malaysia announced six (6)
Strategic Reform Initiative (SRIs) to boost and
strengthen Malaysia’s global
competitiveness.
Basically, the aim of Public Reform is to
increase Government's revenue while
carefully managing expenditure.

This paper mainly focus discuss two sub

areas namely accrual accounting and
broad based tax (Good and Services Tax).

LOGO GOES HERE

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The Implementation of
Accrual Accounting
Past two decades, significant increasing numbers
of government around the world applying accrual
accounting for financial reporting and budgeting
process (Champoux, 2006).

Accrual-based accounting has a greater

transparency through more comprehensive
information on the use of resources and status of
liabilities.

Accrual accounting leads to increase

accountability and credibility, improve financial
reports and statements across public institutions
as well.
Traditionally cash accounting being used by many
governments throughout the world. However, cash
accounting are failure to accurately represent the
amount of resource usage and failure to recognize
future commitments and other contingent liabilities.
 Accrual-based Accounting in Malaysia
Timeline

1 January 2015, The Accrual Accounting

Malaysian Federal The announcement of Federal Government Steering Committee has
Government adoption of accrual of Malaysia set to approved new accrual-
adopted cash accounting by the adopt full accrual- based accounting
basis IPSASs government has been based accounting for policies drafted for
declared. financial reporting. implementation in 2016.

2005 2011 & 2013 2015 2016

March 2013, Treasury May 2013, the change of

explained the roles and Management Plan was
responsibilities of released to make sure that the
financial controlling parties involved fully
officer to implement understand the new system
accrual accounting and offer full commitment to
the implementation of accrual
accounting.
 THE WAY Gomes (2013), new accounting system of GFMAS

HOW THE CHANGES can maintain two ledgers, the cash ledger and
accrual ledger to keep track on both accrual and

TAKES PLACE cash transactions.

IN MALAYSIA Under the cash basis accounting, revenues will be

reported on income statement only in the period
when the money is received from customers.
While, expenses are reported on income
statement when money is paid.

Accrual accounting, revenues are reported on

income statement when they are earned even if it
occurs before cash received from the customers.
While, the expenses are reported on income
statement when they occur, even if it is in different
period from when the payment is made or before
payment is made.

Accrual accounting gives a better image of

organisation’s profits and company’s financial
position at a point of time because all assets
earned are reported and all liabilities incurred will
be reported as well. It reports all of the revenues
actually earned and all of the expenses incurred
to earn revenues.
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 BROAD-BASED TAX OF
GOOD AND SERVICES TAX (GST)
Prime Minister proposed the introduction of GST to replace
1 the current Sales and Services Tax (SST) during the Budget
2014 and has effective on 1 April 2015.
Any person who makes a taxable supply for business
2 purposes and taxable turnover exceeds the threshold of
RM500,000 is required to register his/her business for GST.
The main issue of GST is the public acceptance of the
3 system, as most Malaysian still do not understand GST
and concern on whether the prices will raise or not.
The government will enforce strict action to make sure
traders will not use the GST as a reason to raise prices
4 unnecessarily. Thus, the government has enforced the Price
Control and Anti-Profiteering Act 2011.
Prices will also be monitored by The National Price
5 Council from time to time. Traders that do not follow
the regulations will be charged with heavy fines and
6
penalties.
 THE
IMPLEMENTATION
OF GST GST is a fairer and better tax system if
compared to SST.
Under the current SST system, some business
had to pay multiple taxes and high level of tax-
on- tax.
Through GST, businesses can recover the input
tax on raw materials and expenses as for
manufacturer, retailer, wholesaler, GST is
claimable, and therefore it will reduce costs.
It also increases global competitiveness. Why? As
no GST is imposed on exported goods and
services, prices of Malaysia exports will become
more competitive globally.
GST will provide a fair price to consumers. GST
eliminates double taxation which happens under
SST.
GST system has a better transparency, consumers
will know whether the goods they consume are
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subjected to tax and also the amount they pay for.
RECOMMENDATION
ACHIEVING FISCAL SUSTAINABILITY
AWARENESS
Awareness on exempted items should be raised through
effective communication. Consumers should also be
educated on what to do should they fall victim to price
manipulation.
DISPLAY GST CHARGES
Enforce display of GST charges on price tag. All items that
are chargeable by GST should display the actual amount of
tax payable on the price tag.
REDUCE PROFITEERING ACTIVITIES
Strengthen cooperation with local consumer society to fight
profiteering activities. The government should promote the
establishment of a local consumer association to increase the
effectiveness in gathering reports of price abuse and
strengthening the capacity of enforcement agencies to carry out
their duties.
ENHANCE COMMUNICATION
Enhance communication on the importance of reducing the
budget deficit and a lack of transparency in public expenditure
should be resolved more vigorously in order to build credibility in
the government’s fiscal adjustment plans. 8
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 CONCLUSION The public finance reform initiatives will
strengthen country’s financial position and reduce
government’s debt

In order to materialize the nation goal to become a

high income nation by 2020, government have been
introduced accrual accounting system and replacing
the sale and service taxation system (SST) with
broad-based tax (GST).
It is important for Malaysia to consider the issues and
challenges in implementing accrual accounting in order
to ensure a successful of migration towards accrual
accounting.
The most crucial challenge for Malaysia in implementing
accrual accounting is to have a sufficient qualified staff
compared to the develop countries.

While the main issue of GST is the public acceptance, as

most Malaysian do not understand GST clearly how this
system work.
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