Malaysia unveils record RM388 billion budget; higher tax on the rich 

[KUALA LUMPUR] Malaysia has unveiled its largest-ever budget of RM388.1 billion (S$117.7 billion), focusing on sustainable economic growth, fighting corruption and reducing social inequality.

Malaysia Prime Minister Anwar Ibrahim, who is also the finance minister, said RM289.1 billion will go to operational expenditure and RM99 billion to development expenditure.

This is the first budget by the Anwar-led unity government, which took office close to 100 days ago. It is 4 per cent bigger than the former Barisan Nasional’s government’s budget RM372.3 billion, tabled by former Finance Minister Tengku Zafrul on Oct 7, 2022 – before Parliament was dissolved and a general election called.

The budget includes a new luxury tax, excise tax on vape products, an increased tax rate for high-income earners, and a tax reduction for the middle-income group.

In his over two-hour long budget speech on Friday (Feb 24), Anwar said there is an urgent need to tame the national debt.

At RM1.2 trillion, it is above 60 per cent of Malaysia’s gross domestic product (GDP).

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“Taking into account debts and liabilities, the debt will breach RM1.5 trillion – or 81 per cent of the country’s GDP. The debt service payment alone needed RM46 billion,” he added.

Anwar said Malaysia’s GDP is poised to grow 4.5 per cent this year. The country recorded 8.7 per cent growth in 2022. He forecast the deficit to narrow to 5 per cent of Malaysia’s GDP this year, from 5.6 per cent in 2022.

Here are some other takeaways.

Bad news for smokers, luxury goods shoppers

The government will introduce an excise duty on gel or liquid products containing nicotine. These are widely used in e-cigarettes and vapes.

Half the revenue collected will be allocated to the health ministry to improve the quality of health services.

A luxury tax will be imposed on branded watches and fashion items starting this year.

Income tax adjustments

The income tax rate for those earning between RM35,000 and RM100,000 (classified as middle-income) will be reduced by 2 percentage points. But there will be a 0.5- to 2-percentage-point increase on the income tax rate for those earning between RM100,000 and RM1 million. Anwar said the government is also considering introducing a capital gains tax on the sale of unlisted shares by companies starting 2024.

Helping the poor rebuild retirement savings

Around two million contributors aged 40 to 54 with less than RM10,000 in their Employees Provident Fund (EPF) account will receive an additional RM500 in their EPF accounts to help build their retirement funds.

Attracting investors

Tun Razak Exchange in Kuala Lumpur and Iskandar Malaysia in Johor will become financial zones.

The government will work on strengthening Iskandar Malaysia through establishing a special financial zone with competitive incentive packages to attract international investors and knowledge workers.

To attract investors, business owners and tourists, there are plans to upgrade the Penang and Subang airports. These projects will be led by Malaysia Airport Holdings.