When the unity government was formed post-2022 general election, the first window of opportunity for reforms was presented when the government tabled Budget 2024. While some new taxes were announced and a move to address Malaysia’s subsidy problem was also made, more concrete measures were required.
In this Budget, the FM has suggested top-tier households are those in the top 15% (T15)! The government proposed a two-tier pricing mechanism whereby 85% of households will continue to enjoy the subsidised RON95 at RM2.05, while the T15s will pay market prices.
Source: https://www.malaysianwireless.com
Many questions have been raised on the implementation. Some households may hit T15 with a larger share of working adults in one household while in some households, the T15 may represented by just a sole breadwinner or even by a smaller household size.
Post-budget, many comments have been made that the T15 category will be fine-tuned to include actual expenditure patterns of households.
Attempting to differentiate and ensure only the real B85 will enjoy the fuel subsidies is futile as it will only complicate matters and backfire on the government. Either we float the RON95 price or we don’t! If we float, then the cash transfers to B40 is higher. That seems a simpler solution to remove subsidies and RON95 is floated progressively over a period of 12-18 months.
On minimum wage, a two-tier increase in minimum wage with the first increase to RM1,700 effective 2025 and RM2,000 with effect from January 2026 would have been better. That would also address Malaysia’s low-wage structure and be on course in achieving the income share of gross domestic product (GDP) to 45% set under the Madani Economy framework. “Heavy” resistance will be seen by SMEs and others who view this as added costs with no measurable improvement in productivity. It may also lead to higher inflation.
The 2% tax on dividend income in excess of RM100,000 is perhaps a “testing the water” initiative. While this opens up potential higher rates, wider scope and lower threshold levels in the future, the move, seen in isolation, is not significant.
Even if an individual earns RM10mil in divided income, the tax is less than RM200,000, while those who have a portfolio of RM2.5mil in investments and earning some RM125,000 in dividends (assuming a dividend rate), will only pay some RM500 in tax, which is clearly not material as it is only 0.4% of total dividend income. This is clearly targeted towards individuals with a valuable portfolio and likely enjoyed by households in the T15 category.
After falling to 10.9% in 2020, tax revenue to GDP ratio rose to 12.6% in 2023 and is expected to fall to 12.4% this year. The Government could have created a bi-partisan, private sector driven tax reform committee to examine existing piecemeal efforts with a more comprehensive tax framework with growth and inequality addressed. That could have presented a longer-term strategy to reduce debts, improve implementation and create greater efficiencies. Alas, our FM is more into “song and dance” than in substance!
Reference:
Budget 2025 – a missed opportunity, Pankaj C. Kumar, The Star, 26 October 2024
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