'New anti-rich, anti-business taxes will undermine local investment ecosystem' says think tank

SHAH ALAM - Budget 2023 merely passes fiscal burden over to firms and the rich, says think tank, Center for Market Education (CME) CEO Carmelo Ferlito.

Reacting to the recently re-tabled budget 2023, CME said it seemed to lack a comprehensive strategy for a holistic tax reform.

Ferlito said the government did not introduce any attempt to rationalise government expenditures. Instead, the burden of reducing debt was only shifted on firms and individuals with new and questionable taxes.

According to the education centre, the most significant points of the budget were the incentives for SMEs, the idea of a new industrial plan aiming at rebuilding Malaysia’s manufacturing base, the will to reconsider the different investment schemes which are outdated and need rationalisation as well as the intention of reviewing and reforming government bodies and government-linked companies (GLCs).

The CEO noted that the last three points would need to be judged at the implementation stage to see if the way in which they are developed will be consistent with the desired targets.

He revealed that he was dissapointed with how slogans like “tax the rich” or “tax luxury goods”, which are good to gain political consensus but are unlikely to produce any real benefit for the country, were apparent in the fresh budget.

The same goes with the one-time RM500 injection on the EPF account for a certain group of individuals while being an overall cost for the government, it does not produce any real benefit for the people, he said.

Ferlito said it was just another “measure with a populist flavour”.

CME suggested that more had to be done in terms of fiscal reform and to rationalise government expenditures.

On the increase in taxation for income between RM100,000 and RM 1,000,000, it said that the move is unlikely to produce any real effect beyond just sending a signal that the government is expecting a certain group of individuals to contribute more to increase revenues while it does nothing to cut expenditures.

While the proposal of a Capital Gain Tax (CGT) is agreeable in principle and eventually to be applied to firms, CME argued that it came at the wrong moment when the country is about to face an economic slowdown while it was struggling to attract investments against Indonesia and Vietnam.

The think tank also slammed the taxing of luxury goods as being demagogic and violating the principle of horizontal equity which is essential to a truly equitable tax system.

It further said that no true effort was made to extend the tax base with better enforcement or effective measures such as the good and services tax (GST).

CME added nothing was brought up on targeted subsidies despite it being been talked about frequently. Instead, the amount of subsidies and handouts was increased showing that the government has no intention to move toward fiscal discipline and balanced budgets.

Notably, the think tank aslo highlighted that taxation on vaping will incentivise the black market instead of helping in the direction of a rational harm reduction strategy, which requires an adequate legislative framework as well.

Ferlito further stressed that without government fiscal discipline, the country is unlikely to make a move in the direction of a sustainable growth path.

He added, "new anti-rich or anti-business taxes will only undermine the local investment ecosystem."