THE Center for Market Education (CME) is not impressed with Budget 2023, the first big step for the coalition government run by Anwar Ibrahim. It seems to us that it lacks a comprehensive strategy for a holistic tax reform. It does not introduce any attempt to rationalise government expenditures while the burden of reducing debt is shifted on firms and individuals with new and questionable taxes.

The most significant points of the budget are:

1. Incentives for SMEs;

2. A new industrial plan to rebuild Malaysia’s manufacturing base;

3. Will to reconsider outdated investment scheme; and

4. Reform of government bodies and government-linked companies.
 
These last three points, however, will need to be judged on their execution to see if they meet targets.

The most disappointing part is the fiscal one. Slogans like “tax the rich” or “tax the luxury goods” may gain political consensus but are unlikely to produce any real benefit for the country, quite the contrary. The same goes for the one-time RM500 injection into the EPF account for a certain group of individuals; it is a big cost for government but does not produce any real benefit for the people.

More has to be done in terms of fiscal reform and to rationalie government expenditures.

The increase in taxation for incomes between RM100,000 and RM1 million is unlikely to produce any real effect, but indicates that a certain group of individuals is expected to help raise revenues with the government itself doing nothing to cut expenditures.

The proposal of a capital gains tax, while agreeable in principle, is untimely when we are about to face an economic slowdown and struggling to compete with Indonesia and Vietnam for investors.

The taxing of luxury goods is demagogic and violates the principle of horizontal equity, essential to a truly equitable tax system.

No true effort is made to extend the tax base with better enforcement or effective measures such as the GST.

The budget presents nothing on targeted subsidies. There has been a lot of talking on this point, but nothing is tried; rather, the subsidies and handouts increase, showing that the government has no intention to move toward fiscal discipline and balanced budgets, shifting the burden of reducing debt to firms and individuals.

Taxing vape will incentivise the black market and will not help in the direction of a rational harm reduction strategy, which requires an adequate legislative framework.

There were high expectations of Anwar Ibrahim’s first budget. The budget showed we were right when we said they were too high. We wish to stress that without government fiscal discipline, the country is unlikely to make see sustainable growth. The new “anti-rich” or “anti-business” taxes will only undermine the local investment ecosystem. – February 26, 2023.

* The Center for Market Education is a boutique think-tank based in Kuala Lumpur and Jakarta.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.