Anwar Hints at New Taxes as Malaysia Seeks to Narrow Budget Gap

Anisah Shukry and Kok Leong Chan
·3 min read
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(Bloomberg) -- Malaysian Prime Minister Anwar Ibrahim signaled that the Southeast Asian nation may be considering additional taxes to boost state revenue and meet the target of almost halving the fiscal deficit by 2025.

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Malaysia will “broaden the tax base, diversify tax sources as well as improve taxation through technology,” the premier who also serves as finance minister, told parliament Monday as he unveiled the mid-term review of the 2021-2025 economic blueprint. “Among the new taxes being formulated for implementation in 2024 is the Capital Gains Tax,” he said, without providing details.

The government is sticking to the plan to narrow the budget gap to 3.5% of gross domestic product by 2025 as it sees the economy expanding by at least 5% through the end of the five-year period covered by the 12th Malaysia Plan first presented by Anwar’s predecessor in 2021. A pandemic-induced spending to shield the economy widened the deficit to 6.4% of GDP in 2021 before the shortfall eased to 5.6% last year when the government also boosted the debt ceiling to 65% of GDP from 60%.

“I think we will keep the options open on other income revenues whether they be from direct or indirect taxes,” Economy Minister Rafizi Ramli said in a briefing that followed Anwar’s remarks. The plan to introduce capital gains tax next year had long been relayed by this government.

Anwar, during his speech to lawmakers, said that “the government today bears full responsibility to strengthen fiscal sustainability” and is “aware that efforts must be intensified to improve management of debt and liability towards achieving the fiscal deficit target” in 2025.

The premier, who faced criticism after a key ally was freed of graft charge, sought to reassure investors that Malaysia can restore financial prudence and meet the target of becoming a high-income nation by 2025. One lawmaker from Anwar’s ruling coalition said on Sunday he will join the opposition to protest a decision to drop charges against Deputy Prime Minister Ahmad Zahid Hamidi.

Malaysia in February set a target for the fiscal gap to ease to 5% of GDP this year, with Anwar pledging to manage ballooning debt through graft-busting and subsidy reforms. Data from the first-half of the year suggest the budget gap would be better than expectations on higher revenue, according to a note last month by economist Nazmi Idrus of CGS-CIMB.

Other highlights from the review of the plan are:

  • Increase in development spending budget to 415 billion ringgit ($88.7 billion), up by 15 billion ringgit as it aims to spend at least 90 billion ringgit annually from 2023 to 2025

  • Government plans to impose levy on foreign workers to maintain a policy of keeping overseas workers within 15% of the total labor force to ensure employment opportunities for locals

The previous five-year plan, presented by ex-Prime Minister Najib Razak, had targeted a balanced budget by 2020. This goal was abandoned after his government collapsed amid scandal and his successor Mahathir Mohamad revised the plan in 2018. The subsequent 2021-2025 plan was presented by former premier Ismail Sabri Yaakob.

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