New Budget announced as Malaysians prepare to go to the polls
The dissolution of Malaysia’s Parliament on 10 October took place just a few days after the government had laid out its Budget plans for 2023.
With the theme ‘Strengthening Recovery and Facilitating Reforms towards Sustainability of Economic Resilience and Wellbeing of Keluarga Malaysia’, the RM372 billion ($80 billion) Budget was presented by Finance Minister Zafrul bin Abdul Aziz.
In it, some RM272.3 billion was allocated for operating expenditure, with RM95 billion earmarked for capital expenditure.
A total of RM55 billion has been earmarked for government subsidies, aid and incentives. This includes RM7.8 billion for the BKM cash handout programme, which is expected to benefit 8.7 million people.
And welfare aid worth RM2.5 billion has been earmarked to support about 450,000 low-income households. Families with a household income of less than RM2,500 are eligible for cash handouts, with the amount depending on the size of the family.
A series of income tax cuts were also announced in the Budget. Middle-income individuals will see their tax cut by two percentage points. Those who earn taxable income of between RM50,001 and RM70,000 will see their tax rate reduced from 13% to 11%, while those in the income band between RM70,001 and RM100,000 will have their tax rate cut from 21% to 19%.
Hafidzi Razali, an analyst with advisory firm Bower Group Asia, told the CAN news website that the 2023 Budget “may be described as a populist budget” as it involves cash handouts and reducing taxes to a large portion of the voters.
“It will bring a lot of advantages to people who might be at the receiving front… including the voters who are typically UMNO (United Malays National Organisation) supporters and this can solidify support for Ismail (Sabri),” he said. He added that the increase in social assistance and subsidies could address growing concerns about the rising cost of living.
“The basic consideration here is that everyone is in survival mode, especially the bottom 40% of Malaysian household income.
“With this assistance, many voters would probably think – I’ll be able to cope with my costs of living slightly better, I will probably have more disposable income for the challenges ahead, especially with a global recession possibly happening soon,” he said.
Reducing tax evasion
Many of the tax measures announced in Budget 2023 appear to be aimed at reducing tax evasion and bolstering the government’s revenue position as much as possible amid income tax cuts and an increase in tax relief, according to Grant Thornton Malaysia tax expert Alan Chung. This appears to be done to avoid any implementation of the goods and services tax (GST) for as much as long as possible, he said.
“I had my doubts that there would be any GST announcement in the Budget 2023 and indeed there wasn’t any announcement at all,” said Chung. “If and when any GST is announced, I hope that industries would be given ample time to change their systems.”
Tax collection continues to be the largest contributor to the government’s coffers, representing 75.4% of total revenue. Deloitte Malaysia country tax leader Sim Kwang Gek said: “This is an increase of 3.7% compared with year 2022, showing the government’s heavy reliance on taxes as an important source of revenue.”
To improve the country’s environmental, social and governance (ESG) standing, Budget 2023 proposes new tax incentives to encourage green investments for companies undertaking carbon capture and storage and manufacturing electric vehicle charging equipment.
“It also announced the government’s intention to introduce carbon taxes while studying the mechanism on carbon pricing,” Sim said. “I expect a more holistic framework to be rolled out, taking into consideration regional developments on carbon market, sustainability and climate change.”
UHY Malaysia group managing partner Datuk Alvin Tee said that one of the tax proposals was to cut the corporate tax rate, which would help small and medium enterprises (SMEs). “With this, SMEs could improve on their cashflow and spend on other business purposes,” he said.
- Malaysia’s 15th General Election must be held within 60 days of 10 October, the date Parliament was dissolved.
