THE re-tabling of Budget 2023 later today must not repeat the previous administration’s mistake to benefit the rich, economist Dr Muhammed Abdul Khalid said.

He labelled last year’s budget – originally tabled by the Ismail Sabri Yaakob administration – as “irresponsible”, and said it benefited the affluent. 

“The original budget was an irresponsible budget. It was an election budget. This is not worth repeating.  

“Last year’s budget was for the rich people,” he told The Malaysian Insight. 

Listing out several shortcomings from the budget tabled in October last year, just days before parliament was dissolved to make way for the general election, Muhammed said most items, including subsidies and increase in the Employees’ Provident Fund (EPF) voluntary contribution limit, only helped the wealthy.  

“The rich enjoyed five times more subsidies than the poor,” he said. 

“Moreover, the government announced its plans to raise the cap for voluntary retirement contributions for EPF contributors from RM60,000 to RM100,000. How many of them have this RM100,000? The majority have no money.  

“The benefit of EPF is that it has a high dividend and has a minimum guaranteed payment. It benefits the rich,” he said. 

Muhammed also questioned the government’s proposal to increase the ceiling for investment into the Amanah Saham Bumiputera (ASB) and ASB2 to RM300,000 from RM200,000, again reiterating that only the rich benefit from such incentives.  

“How many Malays there probably have RM200,000 in their ASB accounts? Maybe four out of 100. 

“So is the increase for ordinary people or for the rich?” he asked.  

Muhammed, who served as the economic adviser to former prime minister Dr Mahathir Mohamad, said several tax incentives announced by the government during the last budget also did not help the poor.  

“The government announced that the electric vehicles (EV) would be given tax exemption. Those who buy a luxury EV Porsche pay no tax but those with a Myvi have to pay tax. 

“At the same time, starting April 1, the government also will be implementing a 10% sales tax on imported low-value goods (priced less than RM500) that are purchased online. 

“The ones who are struggling are the ones who usually opt to buy things online because it is cheap. This is expected to bring the country an additional RM200 million tax revenue per year. 

“The government doesn’t collect taxes from the sales of EVs, which is about RM400 million, from the rich but they want to collect some RM200 million from online sales tax. Does it make sense? It’s illogical,” he said.  

In the budget last year, the government announced that the EV tax exemption (import and excise duty) has been extended until the end of 2024.

The Customs Department also confirmed that the government will begin implementing a 10% sales tax on imported low-value goods that are purchased online, set to take effect from April 1.

The original Budget 2023 has not been debated and approved in parliament, with the new unity government deciding to make changes to it in its re-tabling today. 

Anwar, who is also the finance minister, had said the new budget would consider the plight of the B40 group.

Effective spending plan

To have a more effective budget this year, Muhammed said the government should reform in terms of social protection and increase social assistance programmes that benefit the poor.  

He said helping the poor is an investment for the future.  

“Giving aid to those who gave birth, to the unemployed and the elderly will help.  

“This is not just a help but is an investment for the future,” he said.  

Muhammed said that the government could gradually remove the fuel subsidy and re-channel the funds to give more aid to the needy.  

He also said that the fuel subsidy could be channelled through cash assistance to those who really deserve it, and not implemented as a blanket subsidy.  

“The issue is not that we don’t have money but rather we give it to the people who don’t deserve it.  

“The rich get almost double the fuel subsidy than the poor who get cash assistance. This doesn’t make sense. 

“So, use the existing data and credit the money into the accounts of those who really deserve it, like all the cash handouts,” he said.  

Muhammed said the government cannot immediately and entirely remove the fuel subsidy but has to do it gradually, as instant actions may have other consequences. 

“The government must slowly remove the subsidy to ensure the people are not badly affected. 

“So, start with plans to increase aid, then try to equalise the fuel price with the market rate, that would be better because if we do everything in a flash, then the price of roti canai will go up from RM1.50 to RM3.” 

Muhammed said the country’s low tax collection is also hampering its economic growth.  

“Malaysia’s tax-to-GDP ratio stands around 11%, while in Cambodia it is about 16%, and in developed countries it is about 33%. Why are our taxes less? Because the rich don’t pay taxes,” he said.  

“During Covid-19 pandemic, a glove maker made a profit of some RM1.7 billion but paid almost nothing in tax.  

“People who earn RM3,000 a month have to pay taxes. That is unfair.  

“Taxes should be equal, should be fair. Not to push the rich but taxes should be fair like developed countries, so we can generate more income,” Muhammed said.  

It was reported that the tax-to-GDP ratio in Malaysia decreased by 1.0 percentage point from 12.4% in 2019 to 11.4% in 2020. 

Muhammed also said although the Goods and Services Tax (GST) was more transparent, he said reintroducing it will not be a step forward.  

“GST is a more regressive system.  

“What does that mean? If people spend more, they have to pay more. Who spends more? The ones who are struggling. 

“Rich people like to save money. It’s the poor people who shop more and they end up paying more,” he said.  

When GST was in force, it brought in an average of RM42.7 billion a year in revenue in 2016 and 2017. – February 24, 2023.