This budget has done very little for corporates in incentivising them to move up the value chain through innovation and to help them go international.
BUDGET 2025 focuses on the need to steer Malaysia forward in these turbulent times.
We have been blessed with a good administration that is addressing the problems left behind by legacy regimes and taking advantage of the opportunities arising from conflicts especially between the United States and China.
Attacking the budget deficit and planning to reduce it to 3.8% in 2025 without the introduction of any major new taxes has to be commended, coupled with reducing inflation to 2% and reducing unemployment to 3.2%, together with improving the fundamentals which have resulted in the ringgit touching a high of 4.12 to the US dollar very recently.
Missing link is the corporate sector
Prime Minister Datuk Seri Anwar Ibrahim has attempted to appease most sections of society.
However, the missing link here is the insufficient focus on the economic drivers, which are the medium-sized and larger corporates.
Over the years, the government has realised that when it comes to individuals, the focus should not only be on bottom 40% income group but also on middle 40% since they are the people who work and drive the businesses in the economy.
Sadly, the analogy should have been to give priority and greater focus in our budget measures to assist our corporates to grow and become titans, both domestically and internationally.
There is a need for more measures to encourage innovation and expanding their footprint outside Malaysia through necessary capacity building to compete internationally and to provide easier access to capital to withstand any headwinds that they may face.
Although incentives have been given over the years for innovation through research and development breaks, financing from Export-Import Bank of Malaysia and other development institutions, have they produced many corporate icons?
The answer is, no.
The measures in this budget for businesses are insignificant but instead they may face impediments such as the widening of sales and service tax (SST), the introduction of 2% tax on dividend income for individual shareholders and the introduction of a carbon tax, currently isolated to the steel and energy industries but may be extended to others in the future.
The missed GST opportunity
Despite the fact that the prime minister and the businesses in the country, together with the experts, have agreed that the goods and services tax (GST) is a good and efficient tax, Budget 2025 failed to jump on the bandwagon.
It merely tinkered with the SST by widening the scope to impose tax on imported premium goods and to cover commercial services such as fee-based financial services.
The expectation here is to collect a few extra billion ringgit.
However, the reality is the rich can acquire these premium products outside Malaysia and some portion of the fee-based income could be diverted overseas through the use of legitimate transfer pricing and other tax measures that will result in a lesser tax collection.
The narrative that has been bandied about in the public media that GST is regressive is incorrect because a comprehensive GST has in-built mechanisms through the exemptions and zero-rating to minimise or eliminate the regressive nature of the tax.
Our past experience of unreasonably applying the rules on taxpayers and attempting to deny refunds and collecting taxes on transactions in grey areas left a bad taste with the corporates, which ended up bearing the tax rather than being intermediary tax collectors.
Past experience can be used as a lesson for the reintroduction of GST, which would have given the government substantially more taxes than the current expectation of RM34bil projected from the SST in 2025.
Is attention on incentives lacking?
In the desire to collect extra taxes, the Inland Revenue Board (IRB) may have gone too far in attacking the big businesses who have been the “goose laying the golden eggs” over the years by providing employment, utilising our resources, adding value by the conversion of our raw materials to finished products and attracting investors.
A prime example of this is the electrical and electronics sector.
It is high time that the government looks at incentives from a holistic basis.
Malaysia must carry on giving incentives because we are in competition with our neighbours who are providing incentives either through tax breaks, cash grants or through other measures such as tax credits.
We cannot stop providing the tax incentives.
This budget has done very little for corporates in incentivising them to move up the value chain through innovation and to help them go international.
The incentives proposed under Budget 2025 are literally a pittance.
These include incentives for companies in select services in integrated circuit design, for encouraging more women to work, implementing e-invoicing and some minor stamp-duty exemptions.
Looking at these, corporates have been left “high and dry” in this budget.
They are contributing 55% of the IRB’s tax collection and 20% of Royal Malaysian Customs Department’s (RMCD) collection, but the feeling is there is a lack of reciprocity from the IRB and RMCD.
It is high time that both agencies start re-examining the relationship they have with corporates, which hasn’t been addressed by Budget 2025.
Perhaps, a statement from the prime minister and deputy finance minister to improve the relationship will augur well for the country.
The other grouse the corporates who are already in Malaysia have is a feeling that they may be discriminated against in favour of the new investments coming in from overseas.
Many foreign and local companies that have been here for more than 20 to 30 years are not given the appropriate credence and respect they deserve for contributing to the ecosystem of this country.
This is especially true when they come in for the third or the fourth round of incentives on new products or services.
They are being denied on the grounds that they have enjoyed the incentive previously.
This narrative is wrong.
The mobility of well-established Malaysian and foreign companies to move out of the country is not difficult as our neighbours are welcoming of such investments.
As the expression goes: “A bird in hand is worth two in the bush.”
The bureaucrats dealing with and approving such incentives should not be narrow-minded by merely looking at tax collection, but should look at the holistic picture of their contributions in the past or in the future, provided the companies are introducing new products or improvising the existing products to enter new markets or to find new applications and usage.
The mindset of the officials and leadership should change from a focus on tax collection to a broader macroeconomic perspective. It’s time for the pendulum to swing toward the greater good of the nation.
Despite the corporate sector missing out in this budget, the prime minister has been pragmatic in dealing with the other key issues confronting the nation.
This includes rationalising the subsidy on fuel, power and eggs, attempting to narrow the disparity between the rich and the poor, and proposing measures to improve the efficiency of the government machinery and reduce red tape.
SM Thanneermalai is the managing director of Thannees Tax Consulting Services Sdn Bhd. The views expressed here are the writer’s own.
