PwC Statement – Revised Budget 2023

The re-tabled Budget 2023 takes a very structured approach to addressing the challenges the nation is expected to face in view of continuing global economic uncertainty. In his Budget speech, the Finance Minister shared proposed measures to address these challenges. This is a shift from previous Budgets and adopts an approach that is more strategic and reformist in nature in dealing with issues faced by the nation as a whole.

The New Industrial Master Plan 2030

As competition for new investments remains intense across the region, the announcement to redefine the parameters of the type of investments Malaysia needs is important. Investments are a key driver for growth. So moving away from focusing on capital investment alone and placing emphasis on the quality and multiplier effects in terms of creating high quality jobs and building key ecosystems to help the development of local players is important. Applying a tiered approach to the tax incentive would reward higher quality investments. Hence, I look forward to the announcement of the New Industrial Master Plan 2030 in the third quarter of 2023.

Expanding the tax base for those who can afford it

The proposals to introduce the Luxury Goods Tax effective this year, the commitment to study the introduction of Capital Gains Tax on disposal of non-listed shares from 2024 onwards and the 0.5% to 2% increase in personal tax rate for the tax brackets between RM100,001 to RM1 million, should not come as a surprise. Considering the Finance Minister’s response in Parliament recently, the government will not introduce broad-based consumption tax in this Budget, the options available to the government to increase tax revenues are limited.

Nevertheless, the study on the potential introduction of Capital Gains Tax should be done on a measured basis to ensure that the benefits (namely the amount of tax revenue generated) far outweighs the costs (impact to the investment ecosystem and the administrative burden to tax authorities and taxpayers).

What’s in it for the M40

The reduction in personal tax rates of 2% for the RM35,001 to RM100,000 tax bracket will provide much needed relief to the M40, who are similarly not spared from the increase in cost of living. This will result in up to RM1,300 of tax savings for those in these income brackets, which numbers around 2.4 million individuals. The costs for the government are partially offset by the increase in tax rates from 0.5% to 2.0% for individuals in the RM100,001 to RM1,000,000 tax brackets as well as the general increase in wages in the last year which results in increased taxes. The increase in tax rates is expected to impact less than 150,000 taxpayers.

SVDP

The Special Voluntary Disclosure Programme (SVDP) is not new but this time it is more attractive than before. Budget 2019 first introduced the SVDP, with reduced penalties of 10% to 15% on additional taxes for taxpayers who came forward to declare their unreported taxes.

This was emulated for indirect taxes in Budget 2022, in which the SVDP provided a channel for taxpayers to come forward and voluntarily disclose any unreported taxes or duties; with 50% to 100% remission of penalty.

Budget 2023 takes it one step further, by announcing a full waiver of penalties for taxpayers who come forward under the SVDP, which covers both direct and indirect taxes. This is a welcome move, not only in encouraging taxpayers to come clean on their tax affairs, but to encourage those who were previously not declaring taxes to come forward. At the same time, this would contribute positively to government revenues - the previous programme for direct taxes brought in additional taxes and penalties of close to RM8 billion.

The human capital agenda

The re-tabled Budget 2023 straight-on addresses the growing mismatch between graduates and employer expectations and the resultant issue of underemployment. Deepening collaboration with government-linked companies and multinational enterprises to increase employment rates of Technical and Vocational Education and Training (TVET) graduates and provide on-the-job training is a move in the right direction. This is also a more targeted move in developing the skills required by the workforce today.

The acknowledgement that our high reliance on foreign labour is due to low wages and unsatisfactory working conditions is important in helping us deal with the issue comprehensively. Measures which include automation and upskilling / reskilling graduates to ensure they are capable of securing employment in satisfactory working conditions are certainly pragmatic and aligned with the longer term objective of transforming into a high income nation.

What remains missing

Although we see a reduced allocation to subsidies of RM64 billion compared to RM80 billion in 2022 and commitment to move towards a targeted subsidy scheme, the Budget does not provide details as to how subsidy rationalisation will unfold, other than the already increased electricity tariff for large corporations. The reduction in subsidy expenditure seems to be primarily attributable to the lower oil prices (as compared to 2022), but we hope to see further details on the proposed targeted subsidy scheme in the coming months.

Considering Malaysia’s commitment to achieving net zero emissions by 2050, it would have been good to see more comprehensive measures towards this end including potentially introducing carbon tax. As the ESG agenda becomes more prominent among Malaysian corporates, with some even implementing Internal Carbon Pricing policy, it would have been impactful to incentivise companies to adopt strategies to manage climate-related business risks and transition to a low-carbon economy.