Please find comments by Farah Rosley, Malaysia Tax Leader, Ernst & Young Tax Consultants Sdn Bhd about Malaysia’s Budget 2023.
The Retabled Budget 2023 was inspired by Prime Minister Datuk Seri Anwar Ibrahim’s “Malaysia MADANI” vision and is framed around the core values of Sustainability, Prosperity, Innovation, Respect, Trust and Compassion. The proposed measures comprise measures that were proposed in the previous tabling of Budget 2023 as well as new measures that represent the Government’s ambitious and progressive approach to accelerating economic recovery, spearheading sustainable growth and fostering an inclusive society, to ensure no one is left behind.
The Budget was unveiled against the backdrop of projected economic growth of 4.5% in 2023. Government spending for 2023 is expected to be 17% higher than the Budget 2022 allocation, increasing from RM332.1 billion (not taking into account the COVID fund) to RM388.1 billion.
Broadening the tax base and increasing revenue collection
In lieu of not reintroducing a broad-based consumption tax such as Goods and Services Tax (GST), there were various measures proposed to increase tax collections, including:-
- Tax revenue collections will be bolstered by a Voluntary Disclosure Program (VDP) by both the Inland Revenue Board (IRB) and the Royal Malaysian Customs Department (RMCD). Penalties will be fully waived for VDP declarations made between 1 June 2023 and 31 May 2024. The VDP will allow taxpayers to take stock of their tax positions, rectify any errors made without incurring any penalties and to move forward with a clean slate.
- A study will be undertaken on the introduction of capital gains tax on disposal of unlisted shares by companies, albeit at a low tax rate. This is a fundamental departure from the current Malaysian tax framework where capital gains are not taxed (except by way of Real Property Gains Tax).
- Whilst this may increase future revenue collections, the projected benefits would need to be balanced with the impact on Malaysian’s attractiveness as an investment destination. A capital gains tax of this nature may also discourage group restructuring exercises, which are typically undertaken to streamline group structures and to bring about efficiencies. It is encouraging that the Government has indicated that they will hold consultation sessions with the relevant stakeholders to study this proposal in greater detail. We hope this consultation will be robust and the feedback will be considered prior to any implementation decisions being made.
- A proposed excise duty on e-cigarettes and vapes, with 50% of the collection to be earmarked for the Health Ministry to improve the quality of healthcare services.
Measures to spur economic growth
There were also various measures to maintain and enhance Malaysia’s competitiveness as an investment destination and to improve the regulatory framework and business landscape, to spur economic growth. Proposed measures include:-
- Reforming public sector institutions to eliminate duplication of powers and/or functions. This will include reorganizing and streamlining agencies which oversee the ecosystem for startups and innovation, government agencies to refocus on their original functions (and to review the possibility of eliminating subsidiaries which are loss-making or not aligned to the core function), and review of executive remuneration packages for chief executive officers and senior management.
- The Invest Malaysia Council and National Committee on Investment (NCI) will lead efforts to accelerate the approvals for high-potential investment projects, with PEMUDAH empowered as a unit to improve the investment climate and business environment.
- The Government will improve the procedures for doing business and reduce bureaucracy. This will include incentivising local authorities which ease the implementation of approved investments.
- The adoption of digital and technology services by the public sector such as the upgrade of the MyGovCloud service platform.
- Continued commitment to support MSMEs amidst financial challenges and rising costs. Measures include reducing the income tax rate on the first RM150,000 of chargeable income from 17% to 15%, and providing assistance in the form of various loan facilities and guarantees, as well as grants and allocations to automate and digitalise their operations. These measures promote innovation with the aim of enabling MSMEs to be future-ready.
Redistributing income and reducing inequality
Budget 2023 introduced several measures aimed at creating an inclusive society, such as:
- Lowering of the income tax rate for individual taxpayers in the RM35,000 to RM100,000 tax bracket, while counterbalancing this with increased tax rates for those in higher tax brackets.
- Rakyat-centric proposals aimed at protecting and addressing the needs of the more vulnerable segments of society, covering targeted groups such as youth, women, gig workers and the unemployed.
Overall, the measures appear to be cohesive, comprehensive and inclusive, and lay the foundation for a more sustainable future. However, certain measures such as the potential capital gains tax on sale of unlisted shares should be studied in further detail to avoid unintended adverse implications.