Chinese economy

Malaysian PM pledges to tax ‘only where necessary’

Malaysia’s Prime Minister Anwar Ibrahim has said that his administration will take a “tax only when necessary” approach when it comes to taxation policies and reforms.

In his keynote address at the opening of the National Tax Conference 2023 he said: “The changes that we will have to make, including in the forthcoming budget, will be based on these sound principles.

“Tax only when necessary and it should never be seen as a burden to the public and the business community.”

The PM said that such an approach would encourage productivity while ensuring the welfare of those people needing the support of the state.

He also told the conference that Malaysia’s taxation system must also allow both local and foreign businesses to thrive, while instilling a sense of belonging and responsibility consistent with the Madani concept. Malaysia Madani is a policy framework introduced by the Anwar administration that focuses on good governance, sustainable development and racial harmony across the country.

He said: “I look forward to engage with the Inland Revenue Board (LHDN) on their suggestions on how to effectively undertake or adjust policies or introduce new ones. Good governance is crucial to rid the country of endemic corruption, which has an impact on taxation revenue.

“LHDN has a major responsibility to ensure government finances remain sound and that they are not abused, spent on luxury items or taken for granted by leaders who hold office.

“We have seen this from the past, where positions of power are used to amass personal wealth or to enrich families or cronies,” he added.

Anwar also said collecting taxes would be pointless if there were leakages. “We can collect as much as possible, but if governance issues are not resolved, there will be leaks. “You can spend RM22bil to help the people, but if there are leaks of RM 5bn to RM 6bn, things will go haywire.”


GDP to grow by up to 5%

Meanwhile, the latest figures from the Socio-Economic Research Centre (SERC) show that Malaysia’s gross domestic product (GDP) is expected to grow by 4%–5% in the second half of 2023 (2H 2023) and by 4.5%.

SERC executive director Lee Heng Guie said consumer demand would continue to be the key driver for the economy in the remaining months of this year, although the robust spending observed in 2022 might not repeat.

He also warned that the economy was at risk due to inflation risks pressures, with slower export growth expected due to a global economic conditions.

“Our tracking of high-frequency data has shown that the Malaysian economy has moderated in recent months, especially demand for our exports, while consumer spending has normalised.

“We are lucky that we still have a stable labour market condition, [in which] the unemployment rate is at about 3.5%; that helps to support and make sure consumer spending will not fall sharply but just grow at a slower pace,” he said.

Lee expected consumer spending to grow between 4.5%–5% short term, while inflation averages below 3%.

He said he also expected Bank Negara Malaysia to keep the overnight policy rate (OPR) at 3% for the rest of the year. “I think the current level is just right…. It is still supporting the economy but does not overburden on the business and the people,” he said.

He added that exports, which fell by 4.5% in the first five months of this year, would decline by 5%–7% for the full year on the back of subdued demand.

But he also predicted that global growth would continue throughout the second half of this year, although challenges including Russia’s invasion of Ukraine, core inflation remaining high and the effects of higher interest rates still remain.