Federal Government’s Revenue: Where Does It Come From?

*This article was translated by Faiz Rahim from "Komponen Hasil Negara: Dari Mana Datangnya?".

We always know that our beloved country Malaysia and its government has this revenue, that revenue and so on. We hear it all the time over the years. But, as the citizens, we don’t really know what those revenues are and where does it come from? Or, do you?

Fret not, we are here to help you learn about the country’s federal government revenue and its very different components that some of you might never heard of. Unless you might have studied it or currently working in the related field and sector. So, grab your reading glasses (if you have one), a cup of tea/coffee (whichever you prefer) and read up this article, k?

What's covered in this article?

For real, what is it really?

Just so you know, the concept of federal government’s revenue is quite similar to individual income except it’s for a much bigger scope. For us (rakyat marhaen), we work and get paid at the end of the month. Some only have 1 full-time job but there are others working 2/3 jobs at the same time. So, the money that the federal government received each month is kind of their individual income.

Basically, the federal government’s revenue is the total amount of accumulated income from various economic activities in a year's time. The revenue includes payments made from to all resources. It could be in a form of wages, interests, rents and profits. Although the federal government has a fixed income, they also have ad hoc income here and there.

This federal government’s revenue will be used and utilised to help the country pay for various purposes. It could be used to fund salaries for government’s staffs, pay thousands of contractors, supply goods & services, pay the pension fund, channelling funds to public hospitals, schools, first responders and many-many more. Not to mention, the various subsidies for several construction projects such as MRT, LRT and High-Speed Internet. You should note that all of these hundred million/billion projects could be made possible due to the federal government’s revenue.

Source: Sinar Harian

Quick question, do you think our country can survive and sustain if we don’t have enough revenue? Well, luckily it is all thanks to the people especially the taxpayers that have made we don’t see to that. This is because most of the revenue comes from the law-abiding, tax-paying citizens. Don’t believe me? Let me break it down.

The components are...

1. Tax income (Hasil cukai)

If you guys didn’t know, tax income is the main source of our country’s federal government’s revenue. Just like Malaysia, it is also the main source of national income in other countries. Even Saudi Arabia has started to collect tax income as their main source of revenue (crude oil) has become irrelevant and their prices have been decreasing since 2014.

There are 2 types of tax income, which are direct tax and indirect tax. To make it easier to understand, a direct tax is a taxable income that is governed by the Inland Revenue Board Of Malaysia (LHDN). The indirect tax usually comes from Sales & Service Tax (SST) or Goods & Service Tax (GST) which are both under the Royal Malaysian Customs Department (JKDM).

There are also 2 groups of tax income:

Tax income which consists of an individual’s income, company (CITA), petroleum (PITA), withholding tax, cooperatives etc
Other tax income such as stamp duty and real property gain tax (RPGT)

As for the indirect tax, it also includes export duty, import duty, sales tax, service tax, SST and even tourism tax. In 2018, the total amount of tax income is RM174 billion (bil). Isn’t that a lot of money? We mean, $$$$$$.

Hasil carian imej untuk hasil cukai

Also, a direct tax is the main contributor to the federal government’s revenue. It even broke a record in 2019 when the total amount reached an all-time high at RM145,078 bil. It is not including the amount for indirect tax which is usually around RM30 to RM50 bil in a year. This entire collection (basically our money - in a way) is the fund used to develop the country. So, if you pay taxes, be proud!

2. Non-tax revenue (Hasil bukan cukai)

Besides that, non-tax revenue is accumulated from every service that the government has provided to the people. It includes revenue from permit approvals, service fees, sales of services, sales of goods and property, rent and proceeds of investment domestically and internationally. It also includes penalty fees, donations & reimbursements, revenues from oil digging activities and gas (MTJA).

The collection from non-tax revenue is also considered as a massive contribution to the country. In 2018, the total amount of non-tax revenue is around RM51.1 bil. With this number and tax income, the figure has reached over RM200 bil. That is as well, a lot of money!

Hasil carian imej untuk hasil cukai

Source: The Edge Markets

3. Non-revenue receipt (Terimaan Bukan Hasil)

As for non-revenue receipt, it consists of every return of expenses from the government’s spending that has been implemented. It could be receipts from various government agencies, receipts from different ministries to another, return on extra expenses and adjustment fees from previous financial years etc.

2 years ago, the total non-revenue receipt amounted at least up to RM6.2 bil. Interestingly, this exact amount is already sufficient enough to fund the next round of Bantuan Sara Hidup. This shows that although the amount is a tad smaller, it is still beneficial as it could be used to further help the people.

4. Revenue from the Federal Territory (Hasil daripada Wilayah Persekutuan)

Out of all the federal government’s revenue, revenue from the federal territory has the least portion. There are 2 types of revenue from the federal territory which are tax income and non-tax revenue. This type of revenue consists of the produce from the winery, the land, the mines, the forests and the proceeds of the licenses. For the record, the total of revenue from the federal territory in 2018 is at least RM1.5 bil.

Hasil carian imej untuk hasil cukai

Source: Mstar Online

So, are you guys now clear with the federal government’s revenue and its different types? Simply put, it is basically like a full circle. We pay money and we get back. As a citizen, we should continue living our life (like it’s golden) while further supporting and enhancing our country’s economy. Hence, it is with our hard-earned money that we pay our taxes with so that Malaysia can continue to grow as a developed nation. So, be proud taxpayers, it’s all thanks to you!