Anti Rich And Anti Business Taxes Will Only Undermine Investment

With the much anticipated Budget 2023 by the new government released, there are many points that need unpacking, while many observers agree the budget is balanced and leans towards the lower income category of the population, the business community, or the bigger taxpayers feel it lacks progressive measures.

The Center for Market Education is a statement to the media said it is not impressed with the freshly re-tabled budget 2023, CEO Dr Carmelo Ferlito said it seems that it lacks a comprehensive strategy for holistic tax reform, it does not introduce any attempt to rationalise government expenditures, while the burden of reducing debt is shifted on firms and individuals with new and questionable taxes.

Significant points noted 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aiming at rebuilding Malaysia’s manufacturing base; the will to reconsider the different investment schemes, which are outdated and need rationalization; the intention of reviewing and reforming government bodies and government-linked companies (GLCs).

These last three points, however, will need to be judged at the implementation moment, to see if the way in which they are developed will be consistent with the desired targets.

However, Carmelo noted that the most disappointing part, instead, is the fiscal one, explaining that slogans like “tax the rich” or “tax the luxury goods” may be good to gain political consensus but are unlikely to produce any real benefit for the country, quite the contrary. The same goes with the one-time RM 500 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. “A measure with a populist flavour”,

He said more had to be done in terms of fiscal reform and to rationalise government expenditures:

The increase in taxation for incomes between RM 100,000 and RM 1,000,000 is unlikely to produce any real effect, but it launches the signal that the government expects a certain group of individuals to contribute to increased revenues with the government itself doing nothing to cut expenditures;

The proposal of a Capital Gain Tax (CGT), while agreeable in principle and eventually to be applied at the generality of firms, comes at the wrong moment, when we are about to face an economic slowdown and we struggle to attract investments in the competitive race with neighbours such as Indonesia and Vietnam;

The taxing of luxury goods is demagogic and violate the principle of horizontal equity, essential to a truly equitable tax system;

No true effort is made to extend the tax base with better enforcement or effective measures such as the Good and Service Tax (GST);

Nothing is done on targeted subsidies: there has been a lot of talking on this point, but nothing is really tried; rather, the amount of subsidies and handouts increases, showing that the government has no intention to move toward fiscal discipline and balanced budgets, shifting the burden of reducing debt to firms and individuals.

Taxation on vaping will incentivize the black market and will not help in the direction of a rational harm reduction strategy, which requires an adequate legislative framework, not just taxation.

Carmelo remarked that there were high expectations on Anwar’s first budget, but, they needed to be toned down, without government fiscal discipline, the country is unlikely to make a move in the direction of a sustainable growth path; furthermore, new “anti-rich” or “anti-business” taxes will only undermine the local investment ecosystem.

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