The thrust of the government’s strategy comprises economic growth, institutional reform and governance, and social justice. The budget deficit has been reduced to 5%, but it is also expansionary. The Prime Minister believes in a progressive approach to taxation, said Treasury secretary-general Datuk Johan Mahmood Merican.
Speaking at the Invest Malaysia 2023 event today (March 8), Merican said: “Malaysia has to be vigilante against challenges present against implementing the Budget Madani 2023, among them being the high national debt of RM1.5 Trillion which represents 81 % of the Nation’s Gross Domestic Product (GDP), the natural disasters and climate crises and the challenging global outlook.
He added other aspects when looking at the budget is that government is aware of Malaysia’s weaker competitiveness ranking, the corruption index ranking and the living cost and poverty inflation where food prices alone rose by 5.7% since last year.
Merican said, from the onset the objectives of the budget are to drive economic growth by, among others, by increasing fiscal responsibility in terms of reducing the fiscal deficit from 5.6% to 5% by 2025 and addressing flood mitigation targets while facilitating investments. In order to meet the growth envisaged, issues on progressive taxation, SME support, expansion of airports and ports, and Islamic finance need to be addressed and thought through well.
“On upholding Social Justice as a key thrust of the budget, aspect of poverty eradication, unity and social protection need to be looked into to create a more humane nation” he said.
On the aspect of the pending Capital Gains Tax as announced in the budget, Merican said “If the point is to broaden the tax base, it is not the time to start with those who would be most impacted by the implementation of a GST. Let us start with those who would be less impacted by a tax increase. And one that would not affect the capital market.”
In the conversation entitled “Budget 2023: Highlights & Strengthening Fiscal Reform” between Merican and Maybank Chief Economist Suhaimi Ilias, the former stated that the Capital Gains Tax will only finalised next year, while issues which impact the greater society like poverty and the cost of living is to be addressed sooner.
Meanwhile, the government is mulling over targeted subsidy for diesel first before petrol, following the implementation of targeted subsidy for electricity, Merican said.
He said there was a need to rationalise fuel subsidies, more specifically diesel, which was not addressed previously that touched on the commercial side rather than the ordinary people.
Citing the previous subsidy for public transport sector as an example, Johan said vehicle owners had had a fleet card to buy diesel at low price.
“Perhaps that needs to be expanded with a higher pump price in order to address lower-level leakages,” he said in a panel discussion at Invest Malaysia 2023 here today.
He said the government would be looking into the matter in the near future, adding that subsidy rationalisation for petrol, on the other hand, might take a bit longer.
“The implementation of electricity subsidy is much easier compared to petrol. So, that’s why there is an announcement by the government for it to be phased out by the middle of the year.
Late last year, the government implemented a targeted electricity subsidy allowing domestic users to continue enjoying a rebate of two sen/kilowatt hour (kWh) on their power tariff between Jan 1 and June 30 2023.
Speaking to reporters later, Johan said fuel subsidy rationalisation was important to avoid further leakages and ensure better fiscal management by the government in the long run.
He said a detailed study would help the government to continue protecting the lower-income group.
“The study will also help the government to ensure no leakages of the subsidies to the commercial sector or higher-income group,” he added.
On the luxury tax proposed in the revised 2023 Budget, Johan said the government needed to re-study the execution of the tax.
“I think the key part is how do we define products that are going to be subjected to the tax, the threshold value of which you then impose, and what will be the additional sales tax.
“This is, again, something that we are committed to engaging, particularly in the retail tourism sector, and it’s something that we hope to clarify this year,” he added.
The Invest Malaysia (IMKL 2023) forum attracted approximately 1,500 delegates attending in-person and virtually, comprising local and foreign fund managers that collectively manage an estimated total AUM of USD10 trillion (approximately RM44 trillion).
