Cautious Anwar Missed Opportunity For Bold Reforms

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Finance minister Anwar Ibrahim opted to raise the sales and services tax (SST) to 8% instead of reimposing the goods and services tax (GST). (Facebook pic)PETALING JAYA: Prime Minister cum finance minister Anwar Ibrahim missed a golden opportunity to undertake much-needed economic reforms when unveiling Budget 2024 last Friday, say analysts.
They said with elections still a distance away, there was ample room for bold measures to tackle issues plaguing the economy through the introduction of dividend and inheritance taxes, return of the goods and services tax (GST), as well as tweaking petrol subsidies.
Malaysian Institute of Economic Research head of research Shankaran Nambiar said Anwar had displayed a “sense of caution”.
“However, this cautious approach may have resulted in the missed opportunity to implement a comprehensive set of taxes that could generate substantial revenue for the nation in the coming years,” he said during a post-Budget 2024 panel discussion organised by Malaysian Rating Corp Bhd (MARC) today.
He noted the possibility of implementing the GST was on the table, but it appeared that the prime minister was hesitant to take the step at this juncture.
“The GST is a broad-based tax that fulfils various needs. However, the prime minister’s decision to increase the sales and service tax (SST) by 2% to 8% seems like a halfway measure as it raises tax revenue but lacks significant benefits,” he added.
Concurring with Nambiar, BowerGroupAsia’s director Hafidzi Razali echoes the sentiment that Budget 2024 is a missed opportunity on bolstering government revenue.
Although economy minister Rafizi Ramli has said the implementation of GST is not feasible due to current economic conditions, Hafidzi argued the implementation of the GST presents an opportunity during times of crisis.
“It offers a more comprehensive and potentially lucrative means for the country to generate additional revenue for social welfare initiatives,” he said.
“Introducing the GST at a reduced rate or with a transitional phase could have made it more acceptable to the public,” he said.
Progressive taxation narrative
The government’s approach, while not exactly populist, appears to involve maintaining current policies with a greater focus on fiscal responsibility.
However, it seems hesitant to embrace the progressive taxation narrative advocated by Pakatan Harapan, which had called for a bolder stance on tax reform, according to Hafidzi.
“This pertains to issues such as the absence of any mention of a dividend tax for the wealthiest 20 billionaires, or the inheritance tax, which Anwar himself had eliminated and has not been reconsidered,” he said.
“There appears to be a lack of emphasis on a more progressive tax approach for individuals earning around RM50,000 per month, apart from the top billionaires,” he further added.
Inheritance tax is a tax imposed on the recipients of inherited assets. There’s currently no tax for estate inheritance in Malaysia as a previous version of it was revoked in 1991.
Hafidzi stressed that those approaches could have been taken instead of looking at SST.
Budget 2024 proposals also lacks clarity on the issue of fuel subsidy, which takes up a huge chunk of the federal budget.
“While the diesel subsidy has been partially lifted with some exceptions for the logistics industry, the majority of fuel subsidies will apply to petrol,” said Hafidzi.
“Statistics indicate that 40-50% of petrol subsidies benefit individuals who can afford to pay the full price,” he said.
On the capital gains tax (CGT), Nambiar said it is meant to address fairness issues but lacks a clear commitment in its implementation.
“Its ability to raise sufficient revenue and the impact it might have on mergers and acquisitions are uncertain, leaving us wondering if more such taxes will be introduced down the road,” he said.
Anwar said the government will impose CGT for the disposal of unlisted shares by local companies based on the net profit at a rate of 10% from March 1, 2024. - FMT

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