Budget 2023 was recently re-tabled in parliament with the theme: “Developing Malaysia Madani” which encapsulates the message of upholding sustainability, prosperity, innovation, trust, respect as well as care, and compassion. The revised Budget 2023 features a slew of initiatives like tax cuts for the M40, luxury taxes and other incentives. We unpack what's in it for you with tax expert Thanneermalai Somasundaram of Thannees Tax Consulting Services.

Image credit: Shutterstock

Presenter: Sim Wie Boon
Producer: Sim Wie Boon

Podcast Transcription

Sim Wie Boon:
Last Friday, Prime Minister Dato' Seri Anwar Ibrahim, who is also our Finance Minister, retabled Budget 2023 in Parliament with the team developing Malaysia Madani, which encapsulates the message of upholding sustainability, prosperity, innovation, trust, respect, as well as care and compassion. The revised Budget contains efforts to address key issues afflicting the public like rising cost of living, national debt, digitalisation, as well as food safety.

There's a slew of initiatives such as tax cuts for the M40, luxury taxes, reliefs and other incentives that might get us today. Thanneermalai Somasundaram, Managing Director for Thannees Tax Consulting Services, will help me unpack. Good morning and welcome to the show, Thannee.

So, let's just go to a rough overview of the budget, right? What were the key highlights for you? What really caught your eye?

Thanneermalai:
Well, it's the largest budget, certainly. They've got an expenditure plan of RM387 billion, and it's meant to be reviving the economy and giving money to the people who need it. But if you think about the highlights, it's really the reduction in the personal tax.

That's one key highlight. The second one was actually, the first RM150,000 of chargeable income for the small SMEs, the small and medium-sized companies. They will get a reduction of 2% from 17%.

And then for the individuals, now if you transfer property, stamp duty exemption up to RM1 million. Previously, it was within parents and the children. Now it's been extended within grandparents to grandchildren.

And then the government will also be contributing RM500 for those who have an EPF less than RM10,000 within the ages of 41 to 54, because their savings have dropped. The other highlight is also, there's been a lot of hoo-ha around this luxury tax. And if you think about it, so there's also a continuation of all the reliefs that previously you got: the lifestyle relief, the child care—the RM3,000 has been just extended.

Medical relief, first they've increased it from RM8,000 to RM10,000 for serious illnesses, for your medical checkups, and also for things like autism and Down's syndrome and all that. So they've included that so you can claim that medical relief. All the other reliefs can continue.

There are so many, many other reliefs; the medical expenses for your parents and all that will continue. So finally, I think the other big thing is the B40. They're going to give away a big amount of money too.

It's really RM2.5 billion. Those earning less than RM2,500, they will be receiving RM2,500, depending on the number of children. And the extreme poor, the hardcore poor, will also be receiving another RM600 in the form of food baskets and vouchers.

And lastly, the youths will receive RM200 in the form of e-cash credits. So that's where we are. There's a lot of goodies.

They're giving it to the poor, the needy, the B40. And the M40 also will benefit—those who are earning less than RM100,000.

Sim Wie Boon:
Okay, so let's jump into the one that generated a lot of discussion, which is the income tax reduction of 2%, right? I think there's a lot of confusion in this on how it actually works, right? Because there are those that are loathing the 2% for those that are making RM35,000 to RM100,000 annually.

But there are those that are saying that it will be increasing for the RM100,000 to the million ringgit band. And that's the part, I think, where people are starting to get confused about in terms of the income tax reduction and how much they save, right? The general argument is that you can't compare someone that earns RM100,000 to RM1 million. The band should be raised higher, to RM500,000 to RM1 million.

But maybe you can clarify: exactly how does it work?

Thanneermalai:
Let me give you an example. If you are a single individual earning RM37,000, let's say RM37,000, you are not likely to pay any tax at all if you are a single person and you only get self-relief of RM9,000.

But if you happen to be a married person and you don't have children, then up to RM41,000, you're not going to pay any tax. You're basically on a break. And if you happen to have a child and you're married, then it increases to RM43,000.

And at RM43,000, you're not paying. Remember, if somebody's earning RM37,000, he's entitled to RM9,000 relief. His net taxable income is RM28,000.

So, you must look at the taxable income. Now, let me go to the next bracket, the RM35,000 to RM50,000 bracket. Now, if you're earning, let me say, RM50,000—let's say RM49,000—you're only going to be paying tax of RM1,016.

We are at a tax saving. You have a tax saving of RM104 for someone who is earning RM49,000. And let's assume he's an individual, not married, single person.

Between RM70,000 to RM100,000, you're still saving. You'll get a saving of RM1,280. When we talk about RM100,000, you should be earning across RM108,000 because you get RM9,000 relief.

So, you bring it back to RM99,000 as your taxable income. And you will have a tax saving of RM1,280. The same, if you do the same calculation for a person who is married whose wife is not working, RM111,000.

And if he happens to have a child and the wife is not working, it's RM140,000. But once you pass the tipping point, the RM100,000—if you pass the tipping point, that tipping point will come when you're earning about RM109,000. When you earn RM109,000, you are immediately going to be paying an additional tax of RM1,280.

And after that, it starts with 0.5%. They will increase your tax by 0.5%. Then it goes on to 1%. Then it goes on to 2%. So, that's how it works in simple terms.

I mean, anyone earning more than RM108,000, then you carry on. You start at 0.5%. Then it goes to 1%. Then it goes to 2% additional tax.

There have been a lot of people talking about, you're acting like Robin Hood, robbing from the rich and paying for the poor. I'd like to make a comment on that. Somewhere, the government has to collect the money and help.

And the people who can afford it, if you think about it, you're helping not so much the government. You're helping the people who need it. You're compensating what the government has given as benefits.

So, I leave it at that.

Sim Wie Boon:
That is the confusion, right? Because I think people are just taking it at face value and not realising that this is on the chargeable income. And I think hence people start doing their own calculations and realising that, like, why is it suddenly being tipped over and I'm being charged so much?

The recently retabled budget from Dato' Seri Anwar Ibrahim, who retabled the budget last Friday. My guest today is Thanneermalai Somasundaram, Managing Director for Thannees Tax Consulting Services. And earlier in the show, he was unpacking and helping to explain, I think, the confusion that a lot of people have on the 2% tax reduction.

And it was a comprehensive one. I really urge you to go listen back to really understand how it will impact you. But now I want to talk about something else that also was introduced that a lot of people really talked about, which is the luxury tax.

So, you're the tax expert here. I think what I want to know is, do we have a definition for what is a luxury good? And what is the quantum that you think the government is going to look into? How would it work?

Thanneermalai:
No, I'll tell you this. I think on luxury tax, there's a lot more information that we need.

First of all, we need to decide what type of goods, whether it's handbags or watches. The worry is, things like jewellery could be included. You've got to watch jewellery because a lot of people actually put money in as an investment.

Everybody invests. The other one is a lot of discussions about the potential problems we'll have in terms of discouraging tourists. But to me, I think with luxury tax also, we need to decide where we're going to tax it.

And most likely, it's going to be taxed at the point of sale. Luxury items, I think they're going to define what will be luxury items. And it has to be, at the end of the day, based on value.

You can't say every handbag is subject to luxury tax. Only the very expensive ones. It's got to be based on value.

It's got to be at the sales point. And we have got to define what will be included. Will it be expensive cars or jewellery? Will it be handbags? Any other expensive consumables?

Sim Wie Boon:
Electronics? Because we have this personal consumption relief, right? Where I can buy a laptop or a phone and get relief, right? But if that's—I mean, if an iPhone is defined as a luxury, I mean, do you see any overlap or miscommunication?

Thanneermalai:
I see that as a problem. Luxury must be something that if you enjoy, there's something very emotional. It shouldn't be linked to utilitarian stuff.

A mobile phone is a must for everybody.

Sim Wie Boon:
Okay, so we talk about bags, right? I mean, sporting goods, we get a relief, right? But there are luxury items within the sporting goods category as well, right? I mean, that's also another problem.

Thanneermalai:
Yeah, you could be caught because you could be buying a bicycle.

Now, bicycles can even cost you RM50,000. Now, is that a luxury item? But at the same time, it is for your health. Are you going to use value in defining certain goods? So we already said it's handbags, it's going to be watches, it's going to be cars and things like that.

But we have got problems when it comes to certain things. So it's going to be hard decisions that the authorities have to make. And at the same time, they have to take into account that it doesn't discourage sales.

It will also affect local manufacturers. Also, don't forget there are people in this end, the top end of the market where the local manufacturers supply. So there are a lot of questions around luxury tax, but inevitably, it's going to be on items which are of personal satisfaction—emotionally you're paying that emotional connection—which are not used by the day-to-day person, the normal person.

These are people who are buying very high-value items. I hope they're looking at values in RM100,000—that kind of numbers would make sense. But if they go below, if they go to RM10,000, RM5,000, that would be detrimental.

So we'll have to wait and see what happens.

Sim Wie Boon:
Okay, so we move on to the other tax that I think they have introduced, which I think caught a lot of eyes. We can touch on this shortly, which is the tax on e-cigarettes and vapes, right? I mean, again, we don't know what the details are.

But one thing that I think was interesting is that they are looking to take about, I think, 50% or more than that of the income generated and put it into health. In terms of taxing e-cigarettes and vapes, do you foresee any complications with this?

Thanneermalai:
No, I don't see the complications. The only thing is it may end up that the illegal market will boom.

Because it always happens when you impose a tax on liquor and cigarettes and all that—the illegal market always booms, and you can't stop it. But you can only sort of police it and make sure it doesn't happen. But on the other hand, taxing it is not too difficult.

They're going to use excise duty. And it's time we impose excise duty, because if they want to smoke, then it's their choice. And I think we ought to be taxing it and making it more expensive for them.

And it's good. But I think at the same time, they have to be warned about the health effects it will have on them. But I think taxing it is one way of discouraging such smoking.

It's not too difficult.

Sim Wie Boon:
There is also the introduction of a capital gains tax on the disposal of unlisted shares by companies. What does this mean? And what kind of impact do you think it'll have?

Thanneermalai:
This will have a significant impact because in a whole share, basically, there'll be capital gains tax on the sale of unlisted shares.

So basically, if you have a share in a private company, when you sell it, the gain will be taxed. Now, the issue there will be what the cost will be. Because if you go back to the original cost, which could be many, many, many years ago, or it could be nominal values, the tax could be significant because you will apply a capital gains tax, maybe at a low rate. So what they need to do is, for all unlisted shares, you should take the cost as it is today.

You should value the shares today. And then when they sell it in the future, you pay the capital gains. But on capital gains, there is also that saying that if you introduce capital gains, it will hurt the market.

No, I disagree with that. I'll tell you why: because the rest of the world, other than Singapore and Hong Kong, all the major economies have capital gains tax.

We are one of the last people actually to be introducing a wider capital gains tax. Even if you extend it to capital gains on other assets. But at the moment, they're only thinking of doing it phase-by-phase.

But they've got to use it, and there are rules. It shouldn't discourage business reorganisations.

It shouldn't discourage business activities like mergers and acquisitions. And we are in a very lucky position. We are one of the last to actually widen this.

So in that sense, you can look around the world at the best practices, and there are exemptions and there are reliefs, etc. You can build it into the system so that it doesn't destroy or upset businesses. So at the moment, a lot of people want to stop it from being introduced or being expanded.

I think they should think a little bit from a bigger picture and say: if you're making capital gains, then all we ask you is to share a small portion of that as tax with the government. And it's not something that is going to be disrupting or destroying the economy.

Sim Wie Boon:
And we also know that the government is proposing to give a tax amnesty with full penalty waivers, the Special Voluntary Disclosure Programme. What are your thoughts on this? And generally, how well received do you think this will be?

Thanneermalai:
The danger is that we've had a lot of these voluntary declarations and we have had amnesty programs from the '90s and 2000s, etc. I'm just worried that the good taxpayers would be very upset because at the end of the day, the SVDP is a good one; the government needs money.

The last time, they collected RM8 billion. This time around, they can also collect maybe about RM10 billion or RM15 billion. It is possible.

But you shouldn't encourage this on a regular basis. So people like you and me, who have been paying taxes on a regular basis, feel aggrieved that these guys can come in once in five years or ten years and end up paying their past taxes. And they're going to be given a total penalty waiver this time around—like you said, 100%.

You know what happened the last time? Many taxpayers actually abused this. What happened during the last regime was that the government said to take whatever money they declare in good faith and not question them at all. Which is wrong, and which I hope this time around, IRB management will not allow to happen.

Because we as taxpayers have paid the money. And for these people, I think there must be a basis. They must come up and say which years they want to declare and how they arrived at the amount.

And there must be a reasonableness check. Otherwise, what they did the last time was people who were supposed to pay millions of ringgits just paid RM100,000, RM50,000, or RM150,000 and said, "All my taxes up to 2017 are clear." Frankly, the good taxpayers are being cheated by the bad taxpayers.

That should not happen again. If they come forward, let them come forward and accept it in good faith, but do some reasonableness checking and make sure they're paying the taxes they have under-declared in the past correctly. Okay, waive the penalty, but collect the right amount of tax.

We lost out last time, and this shouldn't be repeated. I feel, basically as a good taxpayer, aggrieved that these people who don't pay taxes for many years can come once in a while and just pay their taxes five years or ten years late with no penalty, and pay a lower amount than that. Even Customs recently under their SVDP allowed them to pay—they gave a discount on the tax that was due.

That was really shocking, that you can actually reduce the amount of taxes for someone who is already paying you late. They have to be fair when they come up with this, to make sure that under the SVDP, the amount of tax collected is the right amount of tax.

Sim Wie Boon:
A loophole that was taken advantage of. Lastly, then, I want to ask you Thannee: what do you think is missing from this budget? What would you have liked to see in the budget?

Thanneermalai:
I would have liked to see... there's cryptocurrency—there's no mention about the taxation of cryptocurrencies. On digital businesses also, remember now a lot of businesses are offshoring their business using digital means.

There are taxes, but Customs and IRB on the same matter can take a different view. So they view things differently. There's no synchronisation between the two agencies.

There needs to be synchronisation. The two don't work together. It's like oil and water: Customs works differently, IRB works differently.

Certainly, I thought GST would come, but GST didn't come. So it may come later because our Prime Minister hasn't ruled it out, but he says the time is not right. That's about it.

Those are the main things in my opinion. And the biggest thing they've missed out on is actually: the SMEs have got RM40 billion worth of loans, and they've got a lot of support, the SMEs.

But there's a mid-level group of companies who are not SMEs and who are not the extremely large companies. That group has not been given anything in the budget—for example, on reinvestment or helping them. These are businesses doing very well.

Those who are not in the SME category, but below the billion-dollar group—they may have RM300 million, RM200 million, RM100 million in turnover—didn't get any help. And I think that's been missed.

That's the group that's generating a lot of income and employment. There seems to have been no focus in this budget on those companies.