With the global pandemic stretching far beyond initial expectations, Budget 2022 has the momentous task of spurring the Malaysian economy towards recovery whilst balancing spending against significant pressure on government revenues. The measures announced were all encompassing and very comprehensive, with granular details on the allocations not seen in previous budgets.
Budget 2022 does well in addressing immediate concerns of the nation in ensuring job creation and retention and encouraging capital spending whilst ensuring fiscal sustainability. It is also enlightening to note that it manages to introduce measures to drive the nation’s environmental, social and governance (ESG) and digitalisation agenda, despite the challenging environment.
Budget 2022 continues one of the key focus areas from the previous Budget, that being the employment and upskilling of the Malaysian workforce, with the objective of bringing down the national unemployment rate to 4%. A progressive move is the expansion of the JaminKerja hiring incentive under SOCSO with RM2 billion allocation to incentivise the hiring of unemployed Malaysians and targeted segments such as the handicapped, Orang Asli, ex-convicts and women returning to the workforce, by subsiding between 20% to 40% of the monthly salary of these groups.
The extension of the double deduction for businesses offering scholarships to students in higher educational institutions and further deduction for the Structured Internship Programme, along with expansion in scope to all courses and different levels of students respectively, would further spur businesses to invest in the workforce of the future.
Additionally, Budget 2022 has also extended and expanded on the following tax reliefs to encourage individuals to upskill themselves, thus shifting the burden from employers to employees:-
Extension of tax relief for attending upskilling and self-enhancement courses until YA 2023, along with increase in relief from RM1,000 to RM2,000; and
Expansion of scope of tax relief of RM7,000 to approved professional courses relating to finance, accounting, and ESG.
Budget 2022 enhances support to low-income households plagued by the impact of the pandemic through an increase in direct cash handouts as well as reaching out to a larger group of people.
Budget 2022 continues to drive certain popular measures, such as the extension of the RM2.5K tax relief for smart devices, computers and tablets. It also recognises the growing trend of Malaysians going into the gig economy, by increasing tax relief for EPF contribution by gig workers to RM4K.
To further alleviate the burden of the rakyat, other smaller measures include increasing the tax relief for SOCSO from RM250 to RM350, and expanding the relief to include the Employment Insurance System (EIS).
Given the challenging circumstances, Budget 2022 turns to measures other than the Goods and Services Tax (GST) and capital gains tax to expand the tax base. The expansion of excise duties to cover premixes and e-cigarettes / vape products is in line with the government’s goal of encouraging a healthier lifestyle, whilst increasing revenue collection.
Other measures are in line with Malaysia’s international commitments, for example, imposing taxes on foreign income received in Malaysia by Malaysian tax residents. There is also a continued focus on taxing the digital economy, by expanding sales tax coverage to overseas low value purchases from online vendors delivered by air, and service taxes on e-commerce delivery service providers who were previously not subject to service tax.
What is perhaps unexpected, but certainly represents a bold move by the government to increase tax revenues in the short term, is the increased ‘one-off’ tax rate of 33% on the portion of chargeable income in excess of RM100 million for the YA 2022.
Tax amnesty programmes were introduced in previous budgets, the last significant one being in Budget 2019 for direct taxes. Given the success then of collecting an additional RM8 billion of revenue, the government is now offering a 50% to 100% remission of penalties for voluntary disclosure of unpaid indirect taxes including the now abolished GST, sales and service tax, import duties and excise duties. To ensure this amnesty programme achieves the desired outcome, it will be good to see the government complement this with active measures to identify potential ‘high-risk’ taxpayers, and to encourage them to come forward to self-declare.
As with all its predecessors, Budget 2022 does not neglect the SMEs, with a number of measures introduced to drive SME growth. These include an increase in the allocation for the digitalisation grant scheme, and enhanced access to funding for targeted sectors, such as the Halal, aerospace and green energy industries. Although certainly a welcome move, what remains to be seen, however, is the level of involvement by SMEs in high technology sectors such as aerospace.
The Ministry of Finance had announced in its Pre-Budget 2022 Statement that the sustainability agenda will be further strengthened in Budget 2022. Measures such as the launch of the Voluntary Carbon Market on Bursa Malaysia, the launch of the RM1 billion fund under BNM to encourage Micro SMEs to transition to low carbon and the expansion of the green tax incentives to include rainwater harvesting system projects are very much welcomed. Over the coming years, we are likely to see more targeted initiatives to enable Malaysia to achieve its commitment to be carbon neutral by 2050.
Additionally, people are generally apprehensive about being early adopters of any form of new technology, and electric vehicles (EVs) are no different. Therefore, the introduction of tax exemptions on the import of EVs, road tax exemption for EVs and personal tax relief of up to RM2,500 for costs relating to EV charging stations is certainly a bold move. This will hopefully encourage Malaysians to give EVs a ‘test drive’.
I am glad to see that the budget deficit is targeted to be maintained at 6%, and this is likely to be achieved through expansion of the scope of current taxes such as the sales and services tax, and excise duties as well as other one off measures. This provides room for larger structural reforms in the coming years to further broaden the tax base.
It is heartening to see that the government is introducing a budget monitoring committee to ensure that the initiatives announced in Budget 2022 achieve their intended objectives.
PwC Malaysia Tax Leader