PwC Statement – Budget 2023

The theme of Budget 2023 “Responsive, Responsible and Reformist” paints a picture of the current economic landscape - demonstrating strong growth post pandemic whilst looking ahead to building a more resilient future. The Budget has certainly taken an expansionary approach with a significant increase in development expenditure consistent with the government playing a bigger role in driving growth. At the same time, the baseline issues of helping the B40 and M40 communities are adequately addressed.

Assisting the B40 and hardcore poor

Budget 2023 continues to use direct cash handouts as the primary measure to assist the B40, introducing a new category for Bantuan Keluarga Malaysia 2023, with allocation of RM7.8 billion for 8.7 million recipients. The tweaks and enhancements are measured and aimed at the specific segments where assistance is needed most.

I am particularly pleased with the significant increase in allocation for “Program Pembasmian Kemiskinan Tegar Keluarga Malaysia” from RM150 million for 2022 to RM1 billion for 2023, with RM250 million funding coming from the CSR programmes of GLCs. This programme provides employment opportunities to the hardcore poor with the goal of uplifting them and moving them out from this category. This measure would be more sustainable in the longer term as compared to the continuous reliance on direct cash handouts.

Measures for the youths

In his Speech, the Minister of Finance highlighted his concern on the 11% unemployment rate for youths below the age of 25 years old. I like the two-pronged approach that Budget 2023 is seeking to address - creating employment opportunities as well as encouraging entrepreneurship.

On one hand, there are measures seeking to boost youth employment, such as the extension and expansion of the hiring incentive under SOCSO for unemployed youths, including TVET graduates, and the increase in salary under the Short-Term Employment Programme (MySTEP) to between RM1,500 to RM2,100.

On the other hand, there are also allocations to encourage youths to pursue business opportunities, such as the RM305 million allocation for financing facility for youth entrepreneurs, the RM50 million allocation for Skim Penjaja Muda Keluarga Malaysia targeted at food truck businesses, support for e-hailing businesses via the MyPSV programme and the RM10 million allocation for extension of the Skim TEKUN Belia Mobilepreneur.

What is in store for the M40

The M40 group is not overlooked in Budget 2023. Amidst the slew of measures targeting to alleviate the burden of the B40s, the 2% reduction in personal tax rates across the RM50,001 to RM100,000 tax brackets is a clear shoutout to the M40. This will result in immediate tax cash savings of up to RM1,000 for individuals within this tax bracket.

However, for individuals in the higher tax bracket, the reduction above is partially set off by the consolidation of the RM250,001 to RM400,000 tax bracket, which was previously taxed at 24.5%, with the RM400,001 to RM600,000 tax bracket, at 25%. Nevertheless, there remains a net gain of RM250 for taxpayers with annual taxable income of RM600,001 and above.

There is also a mix of other broad based and specific measures which would mainly benefit the M40 group and above. This includes an increase in the stamp duty exemption on SPAs and housing loan agreements for properties above RM500,000 to RM1 million from 50% to 75% until 31 December 2023, on top of the existing full stamp duty exemption on properties RM500,000 and below, and extension of import duty and excise duty exemptions on imported completely-built up (CBU) EVs until 31 December 2024.

The ESG agenda - should more be done?

I am heartened to see the government’s continued commitment in achieving carbon neutral status by 2050. Budget 2023 continues and expands upon many initiatives which were introduced in Budget 2022, including extending duty exemptions on EV imports, extending the Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE), expanding the Green Technology Financing Scheme, and announcing tax exemptions and investment tax allowances of up to 100% for a period of 10 years. These incentives do cover the Energy Storage aspect of carbon emission reduction initiatives that are very much welcomed as part of the overall development of the green economy.

The government is also considering the introduction of a carbon tax, and we hope this can be expedited. Not only will this hasten the need for businesses to reduce emissions, but can be a source of revenue which can then help subsidise other areas of the overall green agenda. Singapore, the pioneer in introducing carbon taxes in the region, expects to collect SGD1 billion across 5 years.

Attracting investments in the right areas

Despite Malaysia’s commitment to implement the minimum tax under Pillar 2, Budget 2023 does not shy away from using incentives to attract foreign direct investments in strategic areas. We should not miss out on reaping potential changes arising from the global supply chain disruptions and geopolitical uncertainties, and I am glad to see Budget 2023 announcing the extension of the PENJANA relocation incentive to attract electrical and electronics (E&E) investments via the extension of existing tax incentives and a reduced personal tax rate for C-suite expatriates until 2024.

I also see continued efforts in the right direction; with the implementation of a global minimum tax, however tax breaks alone may no longer be a large differentiating sector. Malaysia needs to distinguish itself by offering world-class infrastructure and human capital at a competitive price. The announcement of the National Investment Aspirations (NIA) just the night before recognises the importance of developing the ecosystem which can bring in the right investments.

How will this be funded?

With the various goodies being announced in Budget 2023, I am sure the main question on everyone’s mind will be how these measures will be funded.

Notwithstanding the proposed reduction in personal tax rates, which is estimated to cost the government about RM800 million, the government has projected an increase in tax collections across the various taxes - corporate income tax, personal income tax and sales & services tax.

This could be a reflection of the government’s confidence that the economy will continue to recover to pre-pandemic levels, resulting in higher tax collections contributed by individuals returning to the workforce at higher wage levels, profits from recovering businesses and increased audit activities by the tax authorities.

Budget 2023 - what is missing

Budget 2023 is probably one of the broadest and most overarching budgets I have seen in terms of areas covered, with allocations and initiatives which address both short term needs and the nation’s long term targets. Nevertheless, I would consider Budget 2023 as bold, despite the clear absence of large-scale reforms which many have speculated upon in the past year, including the re-introduction of GST, carbon taxes or a comprehensive subsidy reform.