Malaysia’s Budget 2023 is a lean package that addresses needs of the people: observers

Malaysia’s Budget for 2023 may be a leaner one than last year’s, but it is still a well-rounded package that will not only help alleviate the financial burden of many citizens but also give a much-needed boost to the economy to facilitate long-term growth, industry observers told The Business Times.

Carmelo Ferlito, the chief executive of the Centre for Market Education, a boutique think tank based in Kuala Lumpur, lauded the income tax rate reduction for the middle-income group, as well as the grants and loans that have been allocated for micro, small and medium-sized enterprises.

“These moves are necessary and welcome. I hope these measures can induce positive profit expectations and therefore help the country’s economic system surf the waves that are coming,” he told BT, a day after Finance Minister Tengku Zafrul Aziz introduced a RM372.3 billion (S$114.6 billion) budget in Parliament.

Among the many measures are an allocation of RM1.7 billion to offer micro loans to small business owners, including RM305 million to help youths to start their own business. Separately, for equity crowdfunding, an additional RM300 million will be added to the Dana Malaysia Co-investment Fund to support small businesses.

Patrick Tay, the Deals Partner of Economics and Policy at PwC Malaysia, noted that while there were no mega developments or projects announced this time, the tax incentives for existing infrastructure projects will prove helpful to create a conducive environment for businesses to thrive.

For example, the road infrastructure development for Pengerang in Johor, which will improve the accessibility to the area, will be effective in attracting chemical and petrochemical investors that could help achieve the aim of Pengerang becoming Malaysia’s petrochemical hub.

“The multiplier effect is greater than investing billions of ringgit to develop a single mega project which will take years to see the impact,” he said, adding that such investment could strengthen the country’s credentials and attract foreign investment to Malaysia.

The government will also offers grants and tax incentives for electronic and electrical, aerospace components, semiconductor and pharmaceutical industries.

Samuel Tan, the executive director of KGV International Property Consultants (Johor), said: “What is heartening is that there is more emphasis given to middle income earners and not just focusing on low income households. This gesture will go a long way to alleviate the hardships faced by the middle-income group.”

On Friday, Tengku Zafrul announced an income tax cut of 2 percentage points for the middle-income group in the RM50,001 to RM100,000 tax band, which will benefit about a million people.

The tax rate for those in the RM50,001 to RM70,000 band will go down to 11 per cent (from 13 per cent), and those in the RM70,001 and RM100,000 band will see their tax rate lowered to 19 per cent (from 21 per cent).

Other than the tax cut, Tan noted that there were also allocations set aside for the Iskandar Bus Rapid Transit, Johor Bahru–Singapore Rapid Transit System and the double-tracked electrified train system, which will serve as one of the catalysts for local businesses.

Although Budget 2023 has something for everyone in Malaysia, some observers noted that there were still some aspects that were not addressed by the government, such as the rationalisation of expenditure.

Dr Carmelo said the allocation for civil servant salaries and subsidies is still very high, and if the government did not do more to improve revenue collections and reduce spending, “debt and inflation will be Malaysia’s next problem”.

PwC Malaysia’s Tay felt disappointed that the government did not take the opportunity to outline a clear plan to broaden the tax base in a fiscally neutral manner to increase tax collections.

“Individual tax revenue (collections) was at RM27 billion in 2021, lower than Budget 2022’s estimate of RM36.4 billion. Even if (the broadening of the tax base) seems unpopular, it’s necessary to do so. One of the ways is to implement a value-added tax at a low 3 to 6 per cent to reduce tax rates on the low- to middle-income groups,” he said.