The policies announced deals head on with the reforms that are urgently needed, particularly the commitment to debt management and rationalisation of the subsidies, and closing the disparity between the rich and the poor without introducing any significant new taxes.
Perhaps the missing link that would have assisted in reducing the fiscal deficit is the reintroduction of goods and service tax (GST).
The other significant reform is the plan to cut red tape within the bureaucracy and to manage government expenditure such as curtailing unnecessary trips or other expenditure in government. A key measure to continue the current momentum to bring in extra revenues in the near future is the support given to the businesses to implement e-invoicing which will bring in extra billions in taxes through the reduction of leakages in the system.
Money to support the reforms
This is the largest budget in our history with RM421 billion, and it will be funded by direct taxes of RM188 billion, indirect taxes of RM70 billion, and non-taxes of RM72 billion, and other revenues of RM9.5 billion, and the balance will be through loans. Majority of the funds will come from corporates amounting to 56 per cent of direct taxes and they will collect practically 100 per cent of the RM70 billion for Customs being the collector of taxes.
More corporate support needed
The measures announced to support the corporates were not direct such as providing incentives for purposes of e-invoicing, hiring women returning to work, incurring expenses for implementing flexible work arrangement. Perhaps the incentive in attracting foreign anchor companies to bring their foreign suppliers into Malaysia was notable. A lot more could have been done to provide incentives and support to the corporate sector which is the backbone of our economy. The areas of support could have been in innovation, research and development (R&D), capacity building to assist companies in expanding overseas, easing the availability of financing for companies expanding to markets outside Malaysia, etc.
Biggest beneficiaries
Other than the corporates, the biggest beneficiaries has been the individuals in the B40 and M40 sector where numerous reliefs from expanding the scope of medical expenses to include disease detection kits/services, increasing the tax relief for medical and education insurance by RM1,000, extension of the Skim Simpanan Pendidikan Nasional (SSPN) and private retirement scheme (PRS) tax reliefs for another 3 and 5 years respectively, extending the coverage of various reliefs (i.e. sports / medical) to include parents and grandparents respectively.
A new tax relief will be introduced for individuals buying their first residential home where they are able to get a deduction on the housing loan interest expenses incurred for a period of three years of assessment. The amount of the relief will be based on the value of the home. A maximum relief of RM7,000 is given for homes valued up to RM500,000, and the relief will be restricted to RM5,000 if the home is valued between RM500,001 to RM750,000.
New dividend tax
A surprise in this budget is the introduction of 2 per cent tax on individuals receiving dividend income exceeding RM100,000 annually. This does not apply to profit distributions from EPF, ASB, unit trusts, and dividends remitted from overseas. If the dividend is received by companies, LLPs, trusts, etc, this tax will not apply. Individuals are likely to think about moving the ownership of their shareholdings into non-taxed vehicles or overseas.
Sales and service tax
The expansion of the sales and service tax from 1 May 2025 to include imported premium products and commercial services particularly for fee based financial services is likely to bring in significant taxes.
Ultimately the cost of this tax will be borne by the individuals.
Again, the segment of the taxpayers here are the rich and the sophisticated corporates who will either buy the premium goods overseas or the corporates may reduce the impact of this tax by breaking up the transactions between onshore and offshore through the use of legitimate transfer pricing techniques.
Overall, the budget is tweaked towards taking care of the people in the lower rungs of our society through cash transfers amounting to RM13B, and catering to the needs of the MSMEs through various subsidised loans and other facilities which account for 40 per cent of our GDP. More focus could have been given to the corporates.
SM Thanneermalai is managing director of Thannees Tax Consulting Services Bhd and a Past President of the Chartered Tax Institute of Malaysia.