Anwar's Budget 2023: Setting the right tone for a more equitable Malaysia
ARINAH NAJWA AHMAD SAID27 Feb 2023 12:06pm
Prime Minister Datuk Seri Anwar Ibrahim holds the file containing the Budget 2023 which he retabled in Parliament last week . - BERNAMA
Datuk Seri Anwar Ibrahim had a strong start to his budget speech - reiterating the values of responsibility, transparency and honesty. These are themes that are threaded across the ‘Malaysia Madani’ concept, further emphasizing the premier’s reform agenda.
Like many other countries, Malaysia is not spared from external headwinds such as high inflation rates, and the rising cost of living ahead of what many experts deem as a year of ‘cautiously optimistic’ growth. What are the key themes in this budget that tackle these concerns and are they enough?
Not ‘eat the rich’ but nibbles
Discussions on inequality were placed front and centre in the past few years as it grew wider thanks to the pandemic. The pandemic exposed gaps in social security systems and wealth redistribution, leading to many of the working class calling for economic justice.
Anwar heeded that call and introduced wealth redistributive mechanisms.
The wealthy will face a new luxury tax that, according to the Prime Minister, will be imposed on watches, branded goods and “other luxuries”.
Additionally, the government will mull the introduction of a capital gains tax (CGT) on unlisted share disposal, in line with international best practice guidelines. In 2021, the World Bank said Malaysia ‘has plenty of scope’ to tax capital gains or inheritance as a means to broaden the revenue base.
Though there is much debate around CGT and whether targeting the rich would spook them and other investors, the reality is that the country would benefit from reassessing its tax frameworks. This is to ensure that our taxation framework is headed for a more progressive, equitable and sustainable route as the government manages it’s growing national debt and reassesses its subsidy allocation.
In his speech, Anwar said, “The income and national wealth that is concentrated among the rich elites, it is reasonable that the country’s revenue focuses on the low and middle-income groups”.
To narrow the inequality gap further, the personal income tax rate is to be reduced by 2 per cent for those earning between RM35,000 and RM100,000 and is estimated to benefit around 2.4 million taxpayers. Those earning between RM100,000 and RM1 million a year will face an increase in income tax rate by 0.5 per cent to 2 per cent.
Many have said that this is a ‘long overdue’ move and the government is seen as headed in the right direction. Though the rich may feel a slight pinch, it is something that they are able to withstand.
Building a better business environment
Grants and incentives this year can be seen targeted to spur SME growth, digitalisation, adoption of sustainability standards and achieving carbon neutrality. The government has high ambitions to make the Tun Razak Exchange (TRX) an international financial hub, with incentives to attract new companies to relocate to the country.
Having said that, there is still a lack of clarity on how investment incentives would be carried out to existing companies in the country.
According to the Prime Minister, investment incentives will be restructured towards tiered taxes based on outcomes, such as creating high-value jobs, including local firms in the supply chain and creating new industry clusters.
Though tying tax to outcomes is good, the policy should be clear and take into account industry-specific concerns, especially those that have contributed to the country’s development in terms of government revenue. With many companies restructuring, Malaysia should not just look at attracting newer companies, but also how to retain those that are already here.
According to the Government’s 2022 Fiscal Policy Report, tax revenue constitutes 70.9 per cent of overall revenue collection. Last year, tax revenue increased by 20.2 per cent to RM208.8 billion, with RM153.5 billion primarily contributed by the companies income tax (CIT) and petroleum income tax (PITA) on the back of better economic performance, the inclusion of Prosperity Tax as well as soaring oil prices.
While adjustments on tax to consumers can take place, tax revenue from corporations is still significant and efforts should be taken to ensure that it is maintained.
Would this impact state elections?
Recently it was announced that elections in six states are targeted to be held in the final two weeks of June, and many look to the budget as a precursor of how the elections may pan out. If the budget was insufficient in tackling bread and butter issues, it would have been easy for the Opposition to frame it as a failure of the current coalition and play these sentiments during campaign season.
However, the initial reactions to this budget seem to be positive generally. Some may not deem it a robust budget, but it can be said that it is good enough.
Budget 2023 definitely lays down the right tone and sentiment for the current coalition, that of inclusivity and anti-corruption.
A key difference in this budget compared to those before, was that there was no explicit support for Bumiputera-specific initiatives. In fact, Anwar went a step further and cancelled large projects won via direct negotiations due to allegations of corruption. One of which was targeted at Bumiputera entrepreneurs.
This has raised concern amongst certain Malay-centric quarters, claiming that the Prime Minister is stifling Bumiputera economic development. Whether this sentiment dominates the discourse during state elections remains uncertain, what can be observed is that it has yet to gain traction since the budget announcement.
For now, by assuaging the concerns of the everyday Malaysian it seems that the current Government has paved a comfortable runway for it to remain stable and retain public support entering another election season.
What is crucial moving forward, is being able to execute budget promises and move the needle in the government's reform agenda.
Arinah Najwa Ahmad Said is a Director at BowerGroupAsia, a public policy advisory firm. She has a decade of experience across corporate, government and non-profit sectors.
The views expressed in this article are the author's own and do not necessarily reflect those of Sinar Daily.
