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2023 Budget: Revised budget lacks comprehensive tax reform, says CME

KUALA LUMPUR: The Center for Market Education (CME) is not impressed with the retabled 2023 Budget, saying it lacks a comprehensive strategy for a holistic tax reform. 

CME chief executive officer Dr Carmelo Ferlito said slogans like "tax the rich" or "tax the luxury goods" might be good to gain political consensus but were unlikely to produce any real benefit for the country. 

"It seems to us that it lacks a comprehensive strategy for a holistic tax reform. Iit 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 disappointing part, instead, is the fiscal one, explaining that slogans like 'tax the rich' or 'tax the luxury goods' may be good to gain political consensus but are unlikely to produce any real benefit for the country, quite the contrary. 

"The same goes with the one-time RM500 injection on the Employee Provident Fund (EPF) account for a certain group of individuals. While being an overall cost for the government, it does not produce any real benefit for the people," he said. 

CME said the most significant points of the budget were the incentives for small and medium-scale enterprises (SMEs), plans to rebuild Malaysia's manufacturing base, the government's will to reconsider different investment schemes and reformation of government bodies and government-linked companies. 

"These last three points, however, will need to be judged at the implementation moment, to see if the way in which they are developed will be consistent with the desired targets," said Ferlito.

CME said more had to be done in terms of fiscal reform and rationalising government expenditures. 

It said the increase in taxation for incomes between RM 100,000 and RM 1,000,000 was unlikely to produce any real effect.

But it signalled that the government had expected from a certain group of individuals to contribute to increased revenues with the government itself doing nothing to cut expenditures. 

The proposal of a Capital Gain Tax (CGT), while agreeable in principle and eventually to be applied at the generality of firms, CME said it came at the wrong moment, when the country was about to face an economic slowdown while having to struggle to attract investments in the competitive race with neighbours. 

It added that the taxing of luxury goods was demagogic and violated 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 Good and Service Tax (GST).

"Nothing is done on targeted subsidies. There has been a lot of talking on this point, but nothing is really tried.

"Rather, the amount of subsidies and handouts increases, 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."

CME said taxation on vaping would incentivise the black market and would not help in the direction of a rational harm reduction strategy, which required an adequate legislative framework, not just taxation. 

"There were high expectations on Datuk Seri Anwar Ibrahim's first budget, but, as we stated earlier, they needed to be toned down. 

"The budget showed we were right. We wish to stress that, without government fiscal discipline, the country is unlikely to make a move in the direction of a sustainable growth path.

" Furthermore, new 'anti-rich' or 'anti-business' taxes will only undermine the local investment ecosystem," Ferlito said.

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