By Harvindar Singh | Malaysia |
MALAYSIA’S Budget 2023 features many measures to help the low and middle-income groups to tackle the rising costs of living. Clearly, the budget takes a holistic and pragmatic approach towards managing the livelihood, costs of living, job creation concerns towards ensuring sustenance of the rakyat initially, with adequate steps to be undertaken to lead to economic recovery and growth eventually.
A reduction of the tax rate for individuals that have taxable income in the band of RM35,000 to RM100,000 by 2% has been introduced so that they have more disposable income. Goods and services tax has been left on the sidelines for now together with an alternative tax called Carbon Tax, taxes that are a possibility once the country’s economic situation is more feasible. The exclusion of GST and Carbon Tax is to avoid an increase in the price of goods and services for the rakyat.
A 2% reduction in the concessionary corporate tax rate from 17% to 15% is applicable for the first RM150,000 of chargeable income for small and medium enterprises (SME) to reduce their cost of doing business. Various measures have been included in the budget to help create job opportunities and boost the SMEs as a vibrant and progressive SME sector is integral to the Malaysian economy since it makes up more that 95% of the business community and employs about 70% of the workforce.
The government has introduced the People’s Income Initiative (IPR) and allocated RM750 million to overcome hardcore poverty among some 130,000 people by providing opportunities and the impetus to generate income for those willing to grab these opportunities. Basic goods can be purchased at a discount of 30% through the Jualan Rahmah program, with RM100 million being allocated to the 222 parliamentary areas. Another initiative is the Rahmah Meals program which will offer meals at RM5. A similar program, launched in 2011 called the Menu Rakyat 1 Malaysia offering food at RM2, proved to be financially unsustainable for the operators due to rising costs of material and there being no support from the government. Government assistance would be important to ensure that the noble plan does not fizzle out and lessons can be learnt from previous experiences. .
Households with income less than RM2,500 are eligible to receive Sumbangan Tunai Rahmah (STR) up to RM2,500 depending on the number of children. Perhaps the concern with the STR program is that it might provide a disincentive for the eligible recipients to work as they would be receiving RM2,500 anyway, and therefore the government has to carry this huge and exorbitant cost. A gradual but sure shift towards creating more jobs opportunities along the lines of the IPR initiatives would be more sustainable and meaningful.
The government expects to widen Malaysia’s tax base with the introduction of e-invoicing which will be instrumental in capturing “missing income” from the shadow economy. Tax Identification Numbers (TIN) have already been issued to taxpayers, with youth that turn 18 automatically being issued with a TIN, increasing the taxpayers’ database. A reintroduction of the Voluntary Disclosure Program (VDP) means that taxpayers that have undisclosed income that they need to get off their “treasure chest” – pun intended – can do so from 1 June 2023 to 31 May 2024, without being subject to penalties. The VDP is expected to contribute to higher tax collections.
As expected, no major new taxes were introduced in Budget 2023 although the introduction of Capital Gains Tax(CGT) in respect of the disposal of unlisted shares is being mulled. It is however envisaged that CGT is not expected to contribute significantly to government revenue but it’s introduction might cause capital flight to neighbouring countries that do not have CGT.
To compensate for the loss of tax revenue, individuals with chargeable income of between RM100,001 to RM1,000,000 will be imposed with a higher tax of between 0.5% to 2%, and coupled with a tax on luxury goods that is being introduced, the shortfall in tax collections due to the reduction of personal income taxes for the lower and middle income groups can be covered.
Harvindar Singh is a council member of the Chartered Tax Institute of Malaysia and Managing Partner of Harvey & Associates
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