Malaysia unveils largest-ever budget; more investment incentives, subsidy cuts to narrow deficit
[KUALA LUMPUR] Malaysian Prime Minister Anwar Ibrahim on Friday (Oct 13) announced the country’s largest-ever budget of RM393.8 billion (S$113.6 billion) in 2024, which he said would continue to fuel economic growth amid a challenging environment.
The spending plan – although higher than the previous budget of RM388.1 billion that was announced in February – is 0.8 per cent lower than this year’s spending estimate of RM397.1 billion.
Of the RM393.8 billion, a total of RM303.8 billion will be used for operating expenditure and RM90 billion for development spending.
Anwar, who is also Finance Minister, said he expects gross domestic product (GDP) to grow between 4 per cent and 5 per cent in 2024. This is within the World Bank and International Monetary Fund’s projection of 4.3 per cent.
Anwar, however, said he was confident that the country will achieve a GDP growth of close to 5 per cent with the implementation of several macro blueprints, including New Industrial Master Plan (NIMP) 2030 and the National Energy Transition Roadmap.
The government’s revenue is expected to reach RM307.6 billion in 2024, while the fiscal deficit is projected to be at 4.3 per cent.
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Anwar noted that the government inherited debt and liabilities of RM1.5 trillion, which is 82 per cent of the country’s GDP.
In the new budget, the 76-year-old leader emphasised that Malaysia has spent heavily on blanket subsidies which benefit the rich but don’t do much for the poor.
“Tentatively, we planned to spend RM64 billion on subsidies but the amount has unexpectedly ballooned to RM81 billion. Other than the high-income group, even foreigners in the country also benefited from this,” he said.
He said a targeted subsidy mechanism will be implemented in phases starting next year. The blanket subsidies on chicken and eggs, electricity as well as diesel will be removed in phases next year.
“The savings from the subsidies will be channelled to low-income households through cash handouts, and we expect such allocation to increase to RM10 billion, from the current RM8 billion,” he added.
New taxes are also being introduced in tandem with the subsidy rationalisation to reduce the budget deficit.
The Luxury Goods Tax, which was mentioned in Budget 2023 but has yet to materialise, came back on the table again.
Anwar said a tax of between 5 per cent to 10 per cent on the purchase of luxury goods such as gold jewellery and branded watches starting next year, with exemptions will be given to foreign tourists.
For the disposal of unlisted shares by local companies, the net profit will be charged a capital gains tax of 10 per cent, starting from Mar 1, 2024.
In the new Budget, pursuing foreign direct investment and stimulating domestic investment are some of the priorities for the government with several new measures and tax incentives will be provided to make “Malaysia a preferred investment destination”.
These include a tiered reinvestment tax incentive in the form of a tax allowance of 70 per cent to 100 per cent for companies that invest in high-growth and high-value (HGHV) areas.
To complement this, government-linked investment companies will provide funds up to RM1.5 billion to encourage startups, including small and medium enterprises to venture into HGHV areas.
The government has proposed to turn the Pengerang Integrated Petroleum Complex into a development hub of the chemical and petrochemical sector, with tax incentives in the form of a special tax rate or investment tax allowance to be given to the investors.
The government will introduce the Global Services Hub tax incentive with an income tax rate incentive of between 5 per cent and 10 per cent for a period of up to 10 years, for companies that set up their global service centres in Malaysia.
To attract talent and business owners, the government also introduced the Malaysia Visa Liberalisation Plan to facilitate the approval of employment passes for strategic investors.
To meet the needs of skilled talents, the plan includes offering long-term social visit passes for international students who have graduated and are interested to work in Malaysia.
Anwar added that there will be an improvement of the visa-on-arrival, social visit pass and multiple-entry visa facilities to boost the number of tourists and investors, especially from India and China.
On top of this, the government is looking at relaxing the application conditions of the Malaysia My Second Home scheme to attract more investors and foreign tourists to the country.
The Budget statement will be debated for eight days from Oct 16, followed by responses from the relevant ministries from Oct 30.
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