BUDGET 2023 to be tabled tomorrow is likely to be an expansive one in view of the lagging post-pandemic B40 recovery, a looming election, and yes, the real risk of flooding.
The country’s need to bolster its healthcare system and support the 12th Malaysia Plan will also add to the costs of the budget.
Cyclical factors such as high commodity and electrical and electronics prices as well as one-off factors like Employees Provident Fund withdrawals and the economy opening up fully have contributed to increased economic activity.
However, surveys show that a substantial number of lower-income households can’t meet monthly basic needs, with a significant number of these reportedly having no savings.
The main policy focus will probably be cash transfers and other types of assistance to the lower and middle-income households.
From a macroeconomic perspective, the weakening ringgit, which has been losing against the US dollar does not help, although it is worth noting that other major currencies have fallen even lower.
There might be specific measures in Budget 2023 to address the ringgit, such as government-linked companies and government-linked investment companies being directed to repatriate overseas profits and investment income, and to defer their overseas direct and portfolio investments.
Malaysia’s tax base in recent years, of about 12.5% or so of the gross domestic product, is among the lowest in the world, with the Organisation for Economic Co-operation and Development countries averaging about 15%.
Tax reforms and tweaking of the tax regime would need to be considered in due course.
But any changes to the tax structure or potential introduction of new taxes must be managed carefully and well thought out with the costs and benefits evaluated, before even a mere suggestion of it is made.
In the last year, there have been some significant developments tax-wise globally and in Malaysia as well.
Foreign source income, which was exempted from Malaysian taxation for all categories for a long time, is taxable for corporations and partnerships from 2022 onwards (except for dividend income received from overseas, provided the dividend income has essentially been subject to tax in the overseas country).
Resident individuals are exempted from foreign source income remitted into Malaysia until December 2026, again on condition that the foreign source income has been subject to tax in the foreign country.
In line with global developments, Budget 2023 might see Malaysia’s adoption the 15% global tax on multinational companies (MNC) and with it, the potential introduction of a qualified domestic minimum top-up tax, where if an MNC’s profits in a jurisdiction are taxed below the global tax rate of 15%, a top-up tax would be imposed.
A higher allocation for the healthcare sector is on the cards, with the bulk of the proceeds channelled towards the nation’s healthcare infrastructure to improve quality and ensure the affordability of public healthcare services.
In addition to beefing up cybersecurity, there are many digitalisation gaps that need to be addressed, such as basic connectivity which is still an issue in Sabah, Sarawak and rural areas.
Malaysia’s 5G deployment is lagging behind its Asean neighbours, setting the country back tremendously. In a borderless world and a digital economy, allocations to address these gaps would be expected.
In view of the opening up of the world economy, and our good business relationships as a country with the rest of the world, it’s important that the nation’s policies serve as an enabler to business development and sustainability.
Let’s seize the opportunity to attract investments, create a positive and vibrant business environment, develop a long-term future for our country and its rakyat at the heart of Budget 2023.
Harvindar Singh is the managing partner of Harvey and Associates PLT. The views expressed here are the writer’s own.