With public finances tight amid a narrow revenue base, a key focus of Budget 2024 will be on options to broaden income sources and rationalise subsidies whilst retaining initiatives to support the lower income groups. The 12th Malaysia Plan (12MP) MidTerm Review (MTR) spending targets indicate a development expenditure of MYR90bn. RHB Economics projects a 2024 fiscal deficit of 4.5% of GDP (2023F: 5%). RHB in its Budget 2024 review expects the budget to lay the ground for meaningful fiscal reforms ahead. The impact on the consumer sector is net neutral at best.
Nearly a year on from the 15th General Elections (GE15), the house believes the unity government has sufficient political capital to take some tough decisions needed to improve its fiscal profile, given an uncomfortable debt to-GDP ratio. The subsidy bill and return of the GST. Various media reports quoting Economy Minister Rafizi Ramli suggests a targeted subsidy programme could be introduced by early 2024 – predicated on the scheduled November launch of the Pangkalan Data Utama (PADU) socio-economic database – that could begin with diesel and electricity before being expanded to RON95 petrol. We believe GST will only make a comeback further out, depending on political will – its reintroduction in Budget 2024 looks unlikely. Other potential new taxes that could be introduced include the capital gains and luxury taxes first mooted in Budget 2023.
On the aspect of moving to elevate Malaysia Inc up the value chain, RHB expects Budget 2024 to focus on matching grants and investment tax allowances to encourage more inbound foreign direct investment or FDI flows. The development of digital- and technology-based industries and accelerating public sector technology adoption may entail additional capex spending on IT infrastructure, including emphasis on cybersecurity, data management, and training and productivity-related initiatives. Elsewhere, new gaming taxes look remote, though we are unable to rule out higher excise duties on tobacco and brewery – although these will require a step-up in enforcement initiatives. No major measures related to the property sector are anticipated. The auto sector could see incentives related to EV charging infrastructure, locally assembled EV incentives, and EV road tax reform.
Key drivers for equities going forward include developments in the global macroeconomic outlook, the direction of US monetary policy, China’s recovery pace, MYR/USD performance, continued stability of the Federal Government, and the propensity to introduce politically sustainable fiscal reforms. At 14.5x FY24 P/E, valuations are undemanding, though fragile
corporate earnings could limit the fundamental upside. A core defensive stance is still preferred, and market weakness should be seen as opportunities to gradually deploy cash hoards to add to equity positions. Our end-2023 FBM KLCI target remains at 1,500pts.
Targeted subsidy reform
Based on reports quoting Economy Minister Rafizi Ramli, the Government is expecting to implement its targeted subsidy programme by early 2024. This timeframe is based on the scheduled November launch of the PADU socio-economic database that will incorporate household net disposable income metrics as a benchmarking measure to ensure that targeted subsidies are accurately distributed. It has been speculated that the Government’s plans to introduce a targeted subsidy policy will begin with diesel and electricity, and later be expanded to RON95 petrol. The concerns over subsidy reform are mainly centred on the impact of inflation and consumer spending patterns.
Capital gains tax (CGT)
During the tabling of the Revised Budget 2023, Prime Minister and Finance Minister Dato’ Seri Anwar Ibrahim announced the introduction of CGT on the disposal of unlisted shares by companies beginning in 2024. Malaysia does not have a CGT regime except for gains arising from the disposal of real property, which may be subject to Real Property Gains Tax or RPGT. Media reports quoting Finance Minister and Prime Minister Dato’ Seri Anwar emphasised that CGT would not be introduced on listed shares and that the disposal of unlisted shares for an approved IPO would not be subject to any new CGT.
GST
The earlier iteration of GST was implemented at a 6% rate in Apr 2015 before being removed in June 2018. There was widespread dissatisfaction – especially from smaller businesses – on the way GST was managed and, in particular, the refunds of input taxes due, which reportedly saw inordinate delays. This led to the politicisation of GST in the run-up to GE14 and the initiative to abolish GST being the first promise in the Pakatan Harapan
GE14 Election Manifesto.
Nonetheless, a rising debt burden and persistent budget deficit have forced the Government into a rethink. 12MP targets to bring the fiscal deficit to 3-3.5% of GDP must surely come with a plan to broaden the tax base. GST is also a more efficient taxation system, helping to minimise tax leakages by way of greater transparency at all stages of the supply chain.
In our opinion, GST has a high probability of making a c
