Budget 2023 was presented by Finance Minister Tengku Zafrul focusing on economic recovery and resilience with a bill of RM372.3 billion, the biggest that has been tabled in Malaysian history. Unfortunately due to the dissolution of parliament several days later, we'll likely be looking at a different one when a new government gets elected. For today's episode of Ringgit and Sense, Sim Wie Boon speaks to tax expert Thanneermalai Somasundaram about Budget 2023, and what tweaks could be made to improve it.

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Presenter: Sim Wie Boon
Producer: Sim Wie Boon

Podcast Transcription

Sim Wie Boon:
Good morning, you're tuned in to Ringgit and Cents, the show all about personal finance, and I'm Sim Wie Boon. Last week, Finance Minister Tengku Zafrul announced Budget 2023, which was focused on economic recovery and resilience. The theme was strengthening recovery, facilitating reforms towards sustainable socio-economic resilience of Keluarga Malaysia.
Unfortunately, the caretaker Prime Minister, Dato' Sri Ismail Sabri, announced the dissolution of Parliament this Monday, which means that the budget will likely have to be retabled again once a new government is elected. And while it could be a different one when that time comes, maybe with slight tweaks, we'd like to scrutinise what has already been proposed on today's show. So joining me to discuss this is Thanneermalai Somasundaram, the Managing Director of Thannees Tax Consulting Services.

Good morning and welcome to the show, Thannee.

Thanneermalai: Good morning, and thank you very much for having me back on the show again.

Sim Wie Boon: Okay, so let's start with an overview of what you have on the budget, right? What were some of the key highlights for you? What caught your eye? What stood out?

Thanneermalai:
Actually, what stood out is, if you look at it from a macro perspective, the budget is going to spend RM372 billion. We're going to have revenue of only RM272 billion. So there's a shortfall of about RM100 billion, which will largely come from borrowings. So that's going to be the first challenge for the government, whoever is introducing the next budget.

The second thing I want to say is, I think I just wanted to add on to what you said: this budget that has been announced is practically void. That means the budget is no longer applicable, and there has to be a new budget, which the new government—if it's the same people who are going to run the current government, if they do come back—most likely they will introduce the same measures.

But if there is a new government or new coalitions coming in, then certainly there'll be a significant amount of tweaking to the current budget that has been announced. But I believe they will take large parts of the current budget because it actually caters for the community as a whole and the business community as a whole. So what strikes my eye is the fact that there have been large handouts being given out, which has continued this theme of giving out handouts to the lower-income groups, the B40 groups, and the very, very poor.

For example, the very, very poor, the welfare recipients, those who are under the food poverty line, they're going to receive RM2.5 billion in terms of direct cash subsidies. And the other one that strikes me is also the electricity subsidy of RM40 to the people who use very little electricity; especially, this is targeted at the very poor. And the other one that strikes me, which is continuing from the years when it was started during the previous Barisan government, was actually the Bantuan Keluarga Malaysia, and they're going to allocate RM7.8 billion.

So if you think about it, RM2.5 billion for the extremely poor, that's cash handouts. There's going to be another set of cash handouts of RM7.8 billion that will be given to those who are earning less than, for example, those who are earning less than RM2,500. The plan is that if they have more than five children, they will get RM2,500. Others with four children or less and earning less than RM2,500 will get RM1,000 to RM2,000.

Also, senior citizens will get RM600, and singles will get RM350, and single parents with up to three children will also get a cash handout. So there'll be lots of cash handouts. That's one area. Cash handouts struck me.

The second area was the tax reduction. They didn't forget the M40 this time around because people are beginning to realise during this COVID period that the people who have been hardest hit are not just the B40, but it includes the middle-income groups.

They have actually become poorer as a result of this, and they needed help. So the government has actually stepped in—the previous government, that's the caretaker government currently—they stepped in, and they said they're going to reduce the personal income tax by 2% for those earning between RM50,000 and RM100,000. That's something that struck me.

The other one that struck me is actually companies. The amount is very little, but they did some to help, that is to reduce the corporate income tax for small and medium-scale industries by 2% for the first RM100,000 of income. So instead of paying 17% tax, they'll be paying 15% on the first RM100,000. And then for the remaining RM500,000, they'll pay at 17%, and above that they pay 24%. So there is a tax reduction for the SMEs.

The other one that actually strikes me is the EPF voluntary contribution. This is meant for self-employed people, gig workers, etc. Now, if they want to contribute voluntarily, they can contribute. Previously, the max was only RM60,000 to EPF. Now it's RM100,000, and the government will also give them matching i-Saraan on a very small amount. Previously, it was RM250; they will give a matching grant of RM300. It was only an RM50 increase.

The other one is actually still encouraging women who have taken a career break of two years to come back to work. So then for 12 months, whatever income they earn will actually be exempt from tax. So that's pretty good for women who have taken a two-year career break. And it has to be a real career break.

And then the other thing for individuals is that they've continued allowing the deduction, the RM8,000 ringgit deduction, to the SSPN scheme for your children, for education purposes. And it's been extended up to 2024. So that's been on the individual side.

But on the company side, for businesses, this budget has catered for everybody. They meant it for everyone. And they meant it for the poor, the middle-income, and for businesses, I mean, for certain select businesses. They didn't give much for businesses, but, like, hotels, the reinvestment allowance, now they've expanded it to include renovation and modernisation of hotels. For the corporate sector, what struck me is, certain industries have a long gestation period to make profits. Previously, after 10 years, you could not carry forward your losses. Now they've extended this for specific industries like hydropower and others that will take a long time to make profits. Now, for 20 years, they've allowed them to carry forward the losses.

Lastly, what I would say struck me was that the plan for the coming year, the future—not this year, but next year, 2024 onwards—everyone should have a tax number, a reference number. Those who have it, okay. But those from the age of 18 onwards will be automatically issued one. And those who do not have it will also be issued a TIN number, so that for transactions that you carry out in the future, you must actually quote your tax information number, which is your tax reference number.

And lastly, they are also thinking of actually introducing e-invoicing so that there cannot be any leakage from the system, which means all invoices in the future, in stages, they're going to bring it in industry by industry or sector by sector. And everyone in that sector must issue e-invoices. So it will be easier for the Income Tax Department.

And in the event that VAT or GST is reintroduced, it's very easy to capture the information. So e-invoicing is going to become compulsory in the future. And those are the kind of measures; there's a whole host of measures, but overall, I would say individuals—they have taken care of the poorer sections of society. The middle income was taken care of.

Sim Wie Boon:
So it sounds like your impression is that this is a budget for almost everyone, everyone's getting something, right? So it would be safe to say that there are a lot of winners, but are there any losers who are on the losing side of this budget?

Thanneermalai:
Yeah. If you think about what is missing in this budget, it's really the business community. The individuals were okay, they were taken care of, all segments of society, and the rich didn't really need it. They're looking at the subsidies and all of that. And currently, the rich are benefiting more than the poor. That's certainly the case.

But when it came to business, it was insufficient. Reducing by 2% and giving you RM2,000—I mean, as a benefit for an SME. And then the others were just a continuation of the existing incentives. They said it would be extended to 2024, 2025 and anything else. And some patch, some incentives for the ESG area. But overall, businesses didn't get a helping hand in a big way. Businesses are the ones that need the helping hand in order for this economy to grow.

Remember, we have got a budget deficit; we are facing inflationary pressures, although it's now at less than 4%, but technically, if you didn't have the subsidies, we'd be more than 10%. And it's not that the economy is booming; it's just that it's booming because the economy was shut down and now the economy has picked up. But once that effect wears off, the economy is going to be the real economy, and that could be a slowdown in light of the fact that there will be a world recession.

We are an open economy. So if you think about it, what did businesses get out of it? Businesses didn't get very much out of it. I will tell you that the help they need is incentives. The local companies should be on the same level playing field. We spend a lot of effort bringing in foreign direct investment, and still we are not doing—we all give wonderful numbers, but at the end of the day, when you compare ASEAN, Singapore, Indonesia, and Vietnam are way ahead of us.

Or if you look at it for the last 10, 15 years, we need to equally treat our local investors who are going to be reinvesting, encouraging them to bring back the money, invest in Malaysia, and keep on growing Malaysian businesses.

Sim Wie Boon:
But these are the larger businesses, right? Because the budget does seem quite skewed towards small businesses, though. There are a lot of incentives and funding that are going into...

Thanneermalai:
But they're giving them loans. They're assisting them. It's targeted at certain groups because it is not across the board. I mean, certainly the Bumiputras need help, and it's targeted towards them. Sure, I agree with that. But still, it's not that easy to go through this bureaucracy and get this.

To me, the other side of the game, this budget should have also addressed how we need to address the bureaucracy in terms of how quickly we need answers, whether it's from the various agencies or whether we are under audit. We need clearances. We need certainty. We need help. And we need to cut down the amount of bureaucratic time that we spend dealing with authorities. It is still not as efficient as it should be.

Sim Wie Boon:
I want to zoom in on some of the points that you brought up, right. The one that really, the one that stood out for me was, of course, the EPF self-contribution limit, from RM60,000 to RM100,000 and even the ASB limit up, right. So there is, without a doubt, that we are going through this retirement crisis and given the past two years, a lot of withdrawals. EPF itself and many economists and many people, have warned of an impending retirement crisis because, it's just not enough for many of us to retire. We need at least RM1 million or more. But do you think this increase in the limit will be good enough, strong enough to help rebuild EPF? Does it help address retirement issues?

Thanneermalai:
The RM60,000 to RM100,000 is certainly welcome. But the question is how many people are going to be contributing that extra amount. We should encourage them because the level of savings in Malaysia has dropped. So, you look at it, a lot of people today do not have savings. And if you look at EPF, the majority do not have sufficient savings when they actually retire at 55.

So if you are self-employed, if they can contribute RM60,000, it is excellent. If they can now contribute up to RM100,000, which should be welcome. In fact, this RM100,000 limit should not even be there, in my opinion. They should be allowed to contribute as much as they want, even up to maybe RM200,000. Why not? The more they contribute and save, the better it will be for them in their life. So they need, at the moment, if you think about it, the basic, basic minimum: if you are just a normal, very basic person, you need RM1,000 a month; you should have RM240,000 when you retire at the age of 55.

But if you have RM1,000, it will not get you anywhere. So if you want a reasonable living in today's standards, let's say you need RM5,000, so multiply that by 5,000, it's already more than a million. Five times two is about RM1.2 million.

You need about roughly RM1.2 million. So RM100,000, if they can contribute, it will be fantastic, because if they can work for 10 years, they've already built up that. My only worry is how many people are going to be, those working in the gig economy, those who are working as self-employed; are they in a position to contribute this RM100,000?

Sim Wie Boon:
So the government does try to address this savings with the reduction of income tax and other relief measures, right? Do you think that's effective to kind of like help, especially on the backdrop that we are in a rising inflationary environment and, with the rise in interest rates?

Thanneermalai:
No, I think this is a step in the right direction, encouraging you to save. And remember the other thing that they gave in this budget, and I hope the next government also does that, is there's RM7,000 relief. Remember, currently you can contribute RM4,000 to EPF, RM3,000 to insurance, life insurance. What they have said in this budget is that if you don't contribute to life insurance, you can still contribute an extra RM3,000 to EPF. So you can actually put RM7,000 into EPF. So you can use the whole RM7,000 if you're self-employed and put it into EPF. So you get a deduction of RM7,000.

You're not going to lose because if you make this extra contribution, you are going to get up to RM7,000 now if you do not have a life insurance policy. But if you do have a life insurance policy, then your limit is still RM7,000. So that's something that they've done.

So I would say that then the ASNB also, you remember they've increased it from RM200,000 to RM300,000. Yeah, that's pretty good for the book. This is actually focused towards the Bumiputras, and yes, it allows them to save money. Fine. It doesn't matter to me. As far as I'm concerned, I'm a Malaysian, and as far as I'm concerned, whoever it is who is actually saving money in the system, that money will get ploughed back into the economy.

The government is giving you the encouragement. They're giving you the avenue to invest in a simple way and giving you the tax breaks. So you should take up, and I think at the end of the day, the savings will only benefit the economy because it will come back into the economy in the form of, it'll be recycled in the form of investments and lending to the corporate sector, especially.

Sim Wie Boon:
So what are the other key things that maybe, from a personal and individual perspective, should look out for, right? So yes, we have the RM7,000.

Thanneermalai:
All that is still there. From 2000 and earlier years, those reliefs are all there. Nothing has been taken away. So you can still carry on, getting your RM7,000, getting your RM2,500 for your special allowance, for your computers, for your iPhones and all that. You don't get the extra RM2,500 which you got last year. This year, you won't get the RM2,000. Only the RM2,500 for the lifestyle relief. But this year, they're continuing the SSPN. And remember, for your children's education, you can still contribute. That has been continued. The RM8,000. And then the children also, they're giving you kindergarten. You're actually sending your children to kindergarten at RM3,000. And they've extended the medical benefits to dental benefits, they'll give you up to RM1,000. So, if you spend on dental, they'll give you RM1,000. But that's inside the medical relief, which is already available at RM8,000. So, you can use RM8,000, RM1,000 of which can be for medical, which is dental. So, relief-wise, it's all continuing from the past and nothing really entirely new. I think this time around is around cash handouts and helping people to cushion the current problems they have.

Sim Wie Boon:
When we kind of started our conversation, right, what I got was a sense that, cash handouts might be good for a short-term measure, but they're not a solution for the long-term economic issues that we have, and I think we need to move away from these cash handouts to a self-sustainable mindset, right? But then, how can the government better do that, right? I mean, how can they tweak it to make it focus towards self-sustainability rather than just, really short-term cash handouts?

Thanneermalai:
But unfortunately, it's becoming ingrained, and the people who are receiving it have also begun to accept it that they will forever get it. It's sad to note that it's becoming ingrained because it's not been a one or two-year issue. It's been continuing for a long time. And even when we had the change of government, they too continued it. They didn't want to actually remove it because they were very worried about the political backlash. So, it's become ingrained.

But where I'm coming in, I totally agree with you that you've got to wean away some of the people, not all of them. Some of them are unfortunate that they need the cash handouts. It's like a Social Security system.

We don't have a Social Security system, but this is an alternative to that. So, some, like, single mothers with children who cannot work and people with handicapped children or family members who cannot work, need cash handouts. But my concern is, are we giving cash handouts to people who actually are capable of working, who should be doing work at different levels, who now refuse to go and work, whether it's in the plantations or whether it's in the factories? That's my concern.

People who are capable of working should be made to work or maybe, given the necessary education or maybe actually incentivised to get back to work in one form or the other. Really, the answer is you've got to go through the people who are receiving the bantuan and say, who are the people who are capable of working but choosing not to work? If you keep throwing carrots and carrots and carrots and they may not decide to pick up the carrots, then they'll be enjoying the carrots, and that's about it. There is work available.

At the same time, we need to identify individuals, and if we identify the individuals, we need to skill them up, and maybe we pay them during the training period. We identify them, we bring them into the training, we pay them for the training, then we link them to the employers and to the employers we give them an incentive, like, for example, a deduction for the first 12 months for employing. You see, now you're giving an incentive for bringing in ex-convicts, ex-drug addicts and people who are in the older group who have retired to come back, and if they're earning less than RM4,000, we are willing to give them a deduction. We are willing to give them a special tax deduction for the employer. So that can be retained.

Bring these people. The government will incur the cost. It's a one-off amount of money, and after that, they'll be self-sufficient. You can get them out of the system.

You should teach people how to fish and live and cook and actually have them make their own meals rather than you giving them the fish every other day.

Sim Wie Boon:
Then what else would you like to see once this budget gets re-tabled, right? Whether it's by the same people that drafted it or another bunch of people that might start from scratch, right?

Thanneermalai:
I mean, I'd certainly like to see, not just from a tax measure point of view, I'd like to see this thing we've been talking about, the subsidy, the roll-down or reducing the amount of subsidy because, for example, the rich don't need the subsidy on petrol and we are giving it to them on their RON95. And there are a number of other subsidies we need to think about. That's one.

Number two, we need to think about businesses. I think we need to have a greater focus on how you can help businesses actually get back loans, funding, guarantees and it should be and the bureaucracy around it. Whether I get an incentive or whether I go for any permissions, I want tax certainty from the tax authorities.

Everything should be done on a quick and fast basis, and it shouldn't be looking at their own KPIs to see whether I should be collecting the maximum amount of tax. So I take a position: when the businesses come to you, you've got to try and help them and understand and get them the benefit that is available to you. If there's a tax deduction, let's see how we can give you a tax deduction as opposed to throwing the book at us and saying there'll be penalties and etc. So that's not the way to handle it.