Malaysia budget 2023: Anwar aims taxes at ‘rich elites’ amid cost of living crisis

Malaysian Prime Minister Anwar Ibrahim on Friday asked the nation’s “rich elites” to help pay for the cost-of-living crisis with taxes on share profits, luxury watches and vapes, while gifting cash to the poorest and trimming income tax for middle earners.

The country is contending with soaring inflation, driven in part by the energy price hike caused by Russia’s invasion of Ukraine which has dulled the economic rebound from the pandemic and left the poorest struggling to afford basics.

In a bold budget aiming to insulate a hard-pressed public while servicing a burgeoning national debt pile, Anwar said the government planned to spend 386.1 billion ringgit (US$87 billion) this year, partly pulled from new revenue streams.

“Considering the income and national wealth that is concentrated among the rich elites, it is only reasonable that the country’s revenue focuses on the low and middle-income groups,” said Anwar, who is also finance minister. “Everything that is luxurious should be taxed properly.”

Anwar, 75, said the government would expand its tax base among higher-income earners, including a luxury goods tax on top-tier items such as premium watches and fashion.

The government also planned to introduce a capital-gains tax at a “low rate” for unlisted disposal of shares by companies starting 2024.

Additionally, the government would to tax nicotine-laced liquids or gels used in e-cigarettes and vaporisers to fund health services and a plan to ban tobacco sales to all individuals born after 2005.

“Even though nicotine-laced vape remains illegal, the fact is it is sold widely and is estimated to be worth 2 billion ringgit,” Anwar added. “How good it would be if it is regulated and taxed so that it does not encourage vape usage.”

In Asia, Hong Kong and Singapore recently introduced tax hikes for tobacco products at 31 per cent and 15 per cent, respectively.

Inflation stalks the economy

Inflation was expected to come in the range of 2.8-3.8 per cent in 2023, but could worsen depending on foreign exchange rates and further supply disruptions, the government said in its pre-budget report.

Anwar said the government would set aside 2.5 billion ringgit in cash handouts for more than 400,000 recipients. That was in addition to money to upskill and build capacity of poor communities, including to help young people join businesses such as delivery driving and ride-hailing.

For middle-income earners, the government would reduce the income tax rate by 2 per cent for those earning between 35,000 and 100,000 ringgit annually. The tax rate would nose up between 0.5 and 2 per cent for individuals earning between 100,000 and 1 million ringgit.

Anwar said the government would also bolster enforcement to crack down on smuggling of diesel – which is heavily subsidised – and alcohol and cigarettes, which are taxable products, by criminal syndicates.

The prime minister had ruled out a broad-based consumption tax such as a goods and services tax which would add to pressure faced by the poor.

Additional funds were expected to come from dividends from government-linked agencies such as oil giant Petronas, which would contribute US$9 billion this year, according to Malaysia’s 2023 outlook report which was released ahead of the budget.

To manage the nation’s burgeoning national debt, which reached 1.079 trillion ringgit as at end-2022, Anwar said the government would table a Fiscal Responsibility Act in parliament this year to legislate more transparent and responsible management of the economy.

“We are at a critical juncture in history,” he said. “This administration will strive on the principle of accountability, to manage our fiscal position including managing our debt issues, and at the same time ensure economic growth.”

Anwar’s budget was marginally smaller than the government’s total spend last year, in part as state subsidies for 2023 would be 3.4 billion ringgit cheaper as global commodity prices eased.