Advertisement

KUCHING: Budget 2024 is tabled when the world is faced with unprecedented challenges in a post-normal era. The Prime Minister and Finance Minister, Datuk Seri Anwar Ibrahim noted that such challenges are taking place at a scale and speed that is worrying.

These developments are simultaneously damaging ecosystems as well as the livelihoods of the people.

It is amidst this backdrop that Budget 2024, Belanjawan MADANI Kedua is tabled.

With the Ekonomi MADANI framework as its North Star, Budget 2024 hopes to kickstart Malaysia’s comeback as an economic champion within the Asean region and build on the other Unity Government initiatives such as the National Energy Transition Roadmap, New Industrial Master Plan 2030 and the Reviewed 12th Malaysia Plan.

To achieve this, Budget 2024 focuses on three key areas: best governance for service agility, restructuring of the economy to increase growth and improving people’s living standards.

The second MADANI budget is the largest budget ever tabled by any government in Malaysia’s history, with a total allocation of RM393.8 billion, of which RM90 billion is allocated for development expenditure.

Whilst the amount allocated for development is seemingly lower than the Revised Budget 2023, the total allocation represents an expansionary budget, which is aimed at addressing the key issues of the day and improving the lives of the people.

The Unity Government has also underlined the need to address fiscal responsibility and has provided several measures to rationalise the subsidy structure in Malaysia, which remains one of the highest in the world.

Budget 2024 is the first budget after the unveiling of the National Energy Transition Roadmap (NETR), New Industrial Master Plan (NIMP) and 12th Malaysia Plan Mid-Term
Review (12MP) which are set shape the growth trajectory of the country going forward in the context of increasing economic complexity and fulfilling our net zero journey along the same tangent.

On the back of challenging global economic environment, expansionary budget that remains in place to support the country’s growth agenda and at the same time, improving revenue stream is equally critical to ensure sustainable sovereign creditworthiness.

In this regard, analysts across the board welcome the government’s short-term and mid-term commitment of bringing down the fiscal deficit, as guided via the recent 12MP Review.

Boost for Sabah and Sarawak

A total of RM12.4 billion was set aside for Sabah and Sarawak under the Malaysia MADANI Budget 2024. RM6.6 billion was allocated to Sabah and RM5.8 billion to Sarawak next year, representing an increase from RM6.5 billion and RM5.6 billion respectively from this year’s budget.

“In the spirit of MA63, the federal government has also delegated the power to approve development projects below RM50 million to technical agencies in both states to enhance the effectiveness of these projects,” said Prime Minister Datuk Seri Anwar Ibrahim when tabling the national budget at the Dewan Rakyat.

Additionally, the Unity Government has increased the Special Interim Grants for Sarawak and Sabah to RM300 million, compared to RM16 million for Sarawak and RM125.6 million for Sabah previously.

The last review of the grants for Sabah and Sarawak was carried out in 1968 and 2022, respectively.

Anwar said the Inland Revenue Board of Malaysia (Amendment) Bill 2023 has also been passed via a majority voice vote in the Dewan Rakyat last month, which provides for the appointment of a representative of the Sabah state government, known as the Chief Minister of Sabah, and a representative of the Sarawak state government, known as the Premier of Sarawak, in accordance with the recommendations of the Inter-Government Committee (IGC) 1963.

“The federal and the Sabah governments have also reached an agreement on the transfer of regulatory power over the electricity supply, which will come into effect on January 3, 2024.

“Although the regulatory power is transferred to the Sabah government, the federal government will continue to support the state government in strengthening the electricity industry in Sabah by providing subsidies to Sabah Electricity Sdn Bhd (SESB) until the SESB Transformation Plan is successfully implemented by 2030,” he said.

To ensure stability and reduce disruptions in the electricity supply, especially in eastern Sabah, the Prime Minister also announced that the federal government will support the implementation of hybrid solar power generation and the construction of an electricity transmission network in southern Sabah.

“The federal government is also in negotiations to hand over Bintulu Port and the operation of Rural Air Services (RAS) to the state government,” he added.

Lecturer Nivakan Sritharan from the Faculty of Business, Design and Arts at the Swinburne University of Technology Sarawak Campus welcomed the higher allocations.

“The special grant given to Sarawak and Sabah has been augmented to RM300 million for 2024, when compared to the amount of RM16 million granted to Sarawak and RM125.6 million granted to Sabah, since the last review made in 1969 and 2022 respectively,” he said to BizHive.

“For a long time, since the 1970s, Sarawak has received a special grant of RM16 million only for a year. Since 2023, the government has started increasing it to at least RM300 million.

“The previous 2023 budget showed ample amount of grant allocated to Sabah and Sarawak, including the grant of RM30 million assigned for the development of medical facilities, banks and mobile courts.

“In the previous budget, an allocation had been made to launch a pilot project to screen cervical cancer, using a new method, called ‘Polymerase Chain Reaction’ (PCR), under the aegis of ‘ROSE Foundation’, and in collaboration with the University of Malaya and the University of Sarawak, Malaysia.”

Nivakan saw that in line with the commitment to create a more liveable environment for the public, priority will be given to provide basic amenities, aiming to furnish high-quality, gender-sensitive, disabled-friendly, and elderly-supportive infrastructure.

The Community Drumming Programme continues to enable residents of rural and remote areas, particularly in Sabah and Sarawak, to purchase seven essential commodities at low government-set prices.

In the 2023 Malaysian Budget, the program was given an additional allocation of RM25 million, being compared to RM200 million allocated in the previous year (2022), expanding the scope to 25 new zones, including Passin in Sarawak.

The programme, basically helps stabilise the prices of essential commodities for the consumers so that the people, who are poverty-stricken in rural areas of Sabah and Sarawak, can fulfil their needs, consuming the commodities at standardised prices.

Strategic projects that are expected to commence in 2024 include the flood mitigation projects as well as expansion of Samajaya High-Tech Park in Sarawak.

The continuation of transport related projects such as CSR, ECRL and Rapid Transit System Link as well as acceleration of refurbishments of dilapidated schools and clinics in rural areas will also generate the momentum for the public investment growth trajectory.

It is noteworthy that the 2023 Budget highlight the agreement reached by both the Premier of Sarawak and the Chief Minister of Sabah to use a portion of the petroleum revenue for Sarawak and Sabah for hard poverty alleviation projects.

This includes a 1-billion-ringgit master plan to develop cities bordering Kalimantan, Indonesia such as Ba’kelalan, as a step towards moving Indonesia’s capital to Kalimantan.

The government is committed to continue and expedite the implementation of the ‘Sabah Pan Borneo Highway’ and the ‘Sarawak-Sabah Link Road’ construction, which is more than 1,000 kilometres in distance, at an estimated cost of RM20 billion.

The overall development in Sarawak transportation expected to provide equitable transportation system, improve community mobility across the state, improve fuel efficiency and improve road congestion.

New areas covered in Budget

One thing to note that new initiatives have been included in the 2024 Budget.

These include the review of tax incentives for the women’s re-entry into the workforce programme, and the review of tax incentives for returning Expert Programme.

Swinburne’s Nivakan noted that a similar initiative was launched last year targeting mobility assistance for job seekers.

“RM1,000 has been offered to job seekers who find employment, involving long distance migration from Sabah, or Sarawak to the Peninsular and vice versa. However, this year’s budget focuses on women and their career return programme,” he added.

“About 130,000 women returning to work after childbirth will benefit from the grant, which includes a total of RM290 million. Many women who have left work for family reasons are reluctant to return to work.

“As many companies embrace flexible and family-friendly work environments, balancing work and life is no longer possible.”

Thus, the lecturer said the focus on women’s employment in Sarawak and Sabah is crucial, as in 2022, the rate of participation of women in the labour force was expected to be 52.7 per cent compared to the men’s rate of 78.7 per cent.

Women who return to work after a work break of at least two years from the date of application to ‘Talent Corporation Malaysia Berhad’ will be eligible for income tax exemption from employment income from years of assessment from 2025 to 2028.

For those who return to Malaysia after working abroad for five consecutive years, the date of application to ‘Talent Corporation Malaysia Berhad’ for ‘Returning Expert Program’ is extended from January 1, 2024 to December 31, 2024.

The Sarawak Premier earlier said talent from outside Sarawak such as music, arts and science, mathematics, engineering and technology (STEM) could attract investment.

The Sarawak government plans to issue five-year work permits to professionals working in strategic economic sectors such as energy and digital industries, scrapping the current practice of renewing permits annually in a bid to attract in-demand global talent to its shores.

Skill development is part of Sarawak’s digital economy ambitions and its post-Covid growth strategies.

In its post-Covid Development Strategy 2030 statement, the government wants to make accredited science, technology, engineering and mathematics (STEM) training and education 100 per cent accessible online, as well as engage 3,000 full-time equivalent (FTE) researchers in Sarawak.

“This returning expert program will not only benefit Sarawak, but also at the federal level to curb the existing brain drain problem, which currently stands at 5.6 percent of the total population of 33 million.

“This initiative, along with the extended deadline, allows any professional serving any company belonging to strategic sectors to apply for a five-year work permit directly instead of annually.”

Budget review: Structural tax changes necessary

To ensure the government can meet its fiscal responsibilities, reduce the deficit to 4.3 per cent and increase its revenue to RM307.6 billion, several structural changes to the tax system have been introduced which taxpayers should take note of, according to Crowe Malaysia.

Most notable is the long anticipated introduction of the Capital Gains Tax that will come into effect on March 1, 2024. In addition, the Unity Government is set to increase the Service Tax to a rate of eight per cent for all services excluding food and beverage as well as telecommunication services.

“The implementation of the High Value Goods Tax is also set to take place at a rate of five to 10 per cent,” Crowe Malaysia said in its statement. “Aside from this, the government has also affirmed its commitment to implement the e-invoicing system from August 1, 2024 onwards and Global Minimum Tax in the year 2025.

“In our view, these structural changes to the tax system are an economic necessity that is needed to drive Malaysia forward.

“This is especially in light of the fact that Malaysia remains one of the countries with the lowest amount of taxes collected as a percentage of Gross Domestic Product in the Asean region.”

With a clear commitment to fiscal responsibility as well as an emphasis on the Malaysian citizen, Crowe believes Budget 2024 represents a responsible, timely and bold initiative to realise a more resilient and robust economy.

“We believe that these structural changes will certainly have a significant impact towards Malaysian businesses and encourage taxpayers to review their business operations following these developments.

“It is hoped that the analysis would aid business and finance leaders in establishing the right game plans to meet the challenges these tax changes would bring in the year ahead.”

AmInvestment Bank Bhd (AmInvestment Bank) expect to see negative impact from higher service tax, CGT on unlisted shares and e-invoicing.

The service tax rate will be raised to eight to from six per cent, which excludes food & beverages and telecommunications. However, as other services such as logistics, brokerage, underwriting and karaoke will be included, this could introduce additional brokerage fees charged by stock brokers.

“This will then see higher transaction costs, particularly for retail investors and traders, potentially dampening market liquidity in the near-medium term unless the government provides additional exemptions.

“The government will also implement capital gains tax (CGT) at 10 per cent for disposal of unlisted shares starting from March 1, 2024.”

While this could dampen venture capital activities, AmInvestment Bank believed the impact could be partly mitigated for some investment banking deals as disposals for IPOs and share restructuring within the same group will be considered for exemption.

Currently, tax payers can opt for 10 per cent of the net gain on share disposal or two per cent of gross sales value.

“Meanwhile, administrative costs for small medium enterprises could rise with e-invoicing, although this will first be implemented for larger companies with annual sales exceeding RM100mil from August 1, 2024, with other businesses in phases from July 1, 2025.

“High value goods tax at five to 10 per cent on jewelry and watches based on threshold prices yet to be announced may not have any significant impact on the M40 or B20 segments.

“Hence, this is likely to have a subdued impact to consumer sentiments and neutral for companies targeting the affordable segments such as MR DIY and Padini.”

AmInvestment Bank said the beneficiaries of Budget 2024 are the consumer, property, healthcare, logistics and tourism sectors.

“However, the financial sector could have a mild negative impact from the higher service tax and CGT on unlisted shares.

“The construction, telecommunication and automobile sectors are generally neutral in impact.”

 Uncertainties remain for global minimum tax

The govenrment announced in Budget 2024 that the expected timeline for multinational enterprises operating in Malaysia to prepare for changes in relation to the global minimum tax (GMT).

Back in 2021, a total of 136 countries agreed to a plan by the Organisation for Economic Co-operation and Development (OECD) to implement 15 per cent global minimum tax rate, starting in 2023.

A two-pillar solution has been implemented by the OECD to address issues connected to digitalisation of the economy. Consenting governments are currently discussing implementation plans and turning the agreement into law.

On October 12, the Inland Revenue Board (IRB) launched a new webpage on GMT providing general informatino on GMT.

The IRB had stated that Malaysia intends to impleemtn the multinational top-up tax (MTT) based on Model GloBE Rules and the Qualified Domestic Top-Up Tax (QDMTT) as outlined in Article 10 of the Model GloBE Rules.

Deloitte Malaysia international tax leader Tan Hooi Beng welcomed the GMT.

“The question on the start year for Malaysia in respect of GMT has lingered on our minds for months. Many thought that 2024 would be the year and started to prepare for that eventuality,” she commented on this topic.

“In this Malaysian Budget 2024, it was announced that Malaysia is expected to implement GMT in 2025.

“With this, the knee-jerk reaction is that there will be breathing space for the affected MNEs given that there are additional 12 months to prepare. But, is this really the case?” she asked.

“GMT will apply to large MNEs that operate in Malaysia and elsewhere. Depending on where they operate, the level of urgency would differ.

“Where Malaysian-based MNEs operate only in Malaysia and countries that will implement GMT in 2025, there could be slight breathing space but this will also depend on whether the GMT law in Malaysia and those countries are regarded as being substantially enacted in 2023.

“If so, some form of disclosure in the financial reports for 2023 would still be required, albeit companies may opt to make a limited disclosure.

“Where Malaysian-based MNEs operate in Malaysia and countries that implement GMT in 2024 such as the United Kingdom, there are already GMT issues that need to be dealt with immediately.”

An impact assessment on the potential top-up tax there given the local QDMTT in those countries as well as disclosures for financial reporting in 2023 under the relevant accounting standards would be necessary. Analysis on data readiness may also be carried out.

Regardless of 2024 or 2025, Malaysian subsidiaries of the foreign-based MNCs would need to start assessing the GMT implications on the tax incentives that they are enjoying in Malaysia.

Likewise, GMT needs to be considered in new applications for tax holidays in Malaysia. The level of economic substance which would cushion the impact of GMT need to be factored in.

The breathing space, if any, is temporary as a host of things need be done in terms of impact assessment, data readiness, tax provisions, financial disclosures, impact on tax incentives and tax compliance regardless of 2024 or 2025 being the start year.

Hence, those MNEs that commenced preparation for GMT, would be in a better position to manage their GMT affairs”.

-p6
The IRB had stated that Malaysia intends to impleemtn the multinational top-up tax based on Model GloBE Rules and the Qualified Domestic Top-Up Tax as outlined in Article 10 of the Model GloBE Rules. — Bernama photo

 Boon for the local bonds market

Head of Malaysia business Hanifah Hashim of global asset management firm Franklin Templeton sees a good mix of initiatives in the Budget which will bode well for the bonds market.

“The 2024 budget sets a fiscal deficit target of 4.3 per cent, demonstrating the government’s commitment to reform the economic structure whilst reducing fiscal deficit in stages.

“A lower fiscal deficit target, and a capped debt-to-GDP ratio all bodes well for the bond market,” she said in a statement. “With the planned reduction in fiscal deficit, we forecast a reduction of government bond supply over the next few years.

“The financial discipline put in place should also appeal to foreign investors through portfolio inflow and this will support local bond yields as well as the ringgit.”

However, in the short term, Hanifah warned that there is risk of potential increase in government bond supply especially on the longer end, due to conversion of short-term Treasury Bills to longer tenor government bonds.

In addition, inflation may still linger in 2024 due to the incremental increase of 2 per cent of SST to 8 per cent, and the removal of price ceiling for chicken and eggs.

“Although petrol subsidy rationalisation was not announced in this Budget 2024, the projected inflation of 2.1 per cent-3.6 per cent seem to imply that this may be executed in 2024,” she opined.

“As the petrol subsidy rationalisation scheme remains opaque at this juncture, the bond market has yet to price in this event.

“Bond yields should be supported once inflation uncertainties stabilise and prove to be manageable in the medium term.”

Although the government bond market is expected to be volatile with an upward yield bias during this period, Hanifah said the corporate bond market should do well as there is a window of opportunities for corporations to raise funds with attractive spreads above the government bond yields.

She also expect construction sector bonds to do well if infrastructure spending is carried out in a timely manner in 2024.

“Furthermore, in our view, continued emphasis on the road infrastructure projects in East Malaysia which includes the Pan Borneo Sabah and Sarawak-Sabah Link Road (SSLR) Phase 2 projects, will prompt more construction companies to tap the bond market to seek funding, as well as some projects to be funded through government guaranteed issuance.

“On the other hand, the property segment is expected to remain lacklustre despite some initiatives to revive abandoned projects and relaxation of the residency through investments, Malaysia My Second Home MM2H requirements.

“With lower net disposable income (from higher SST and higher prices of basic goods like chicken and eggs, which will cause multiplier effect on food prices in restaurants etc) coupled with higher Overnight Policy Rate and poor rental market, demand for property is unlikely to increase sharply in 2024.”

The government’s allocation of RM2.47 billion for housing projects in 2024, including RM1 billion to support reputable developers in restoring abandoned projects, is commendable and contributes significantly to property sector revitalization and housing development.

“Sustainability and energy transition are key priorities in Budget 2024, with support for Sustainable and Responsible Investment (SRI) and the issuance of a biodiversity sukuk.

“We might see more primary corporate bonds issuances from the renewable energy space especially from the solar industry which is positive news for the domestic bond market.”

Source: https://www.theborneopost.com/2023/11/05/budget-2024-tax-ing-our-way-towards-recovery/