11-9-2023 (KUALA LUMPUR) Malaysian Prime Minister Anwar Ibrahim has suggested that the Southeast Asian nation is exploring the possibility of implementing additional taxes as a means to bolster state revenue and achieve the goal of nearly halving the fiscal deficit by 2025.
During the unveiling of the mid-term review of the 2021 to 2025 economic blueprint in Parliament, Prime Minister Anwar Ibrahim, who also serves as the finance minister, outlined the government’s strategy. He stated that Malaysia intends to “broaden the tax base, diversify tax sources as well as improve taxation through technology.” Among the new taxes under consideration for implementation in 2024 is a capital gains tax, although specific details were not provided.
The government remains committed to its plan of narrowing the budget deficit to 3.5 percent of gross domestic product (GDP) by 2025, with expectations of the economy expanding by at least 5 percent over the five-year period outlined in the 12th Malaysia Plan, initially presented by Anwar’s predecessor in 2021. The deficit had widened to 6.4 percent of GDP in 2021 due to pandemic-induced spending aimed at shielding the economy, before decreasing to 5.6 percent last year, concurrently with an increase in the debt ceiling from 60 percent to 65 percent of GDP.
Economy Minister Rafizi Ramli, in response to Anwar’s remarks, stated, “I think we will keep the options open on other income revenues, whether they be from direct or indirect taxes.” The introduction of a capital gains tax next year had already been communicated by the government.
Anwar Ibrahim emphasized in his address to lawmakers that the government has “full responsibility to strengthen fiscal sustainability” and acknowledged that “efforts must be intensified to improve management of debt and liability” in order to meet the fiscal deficit target by 2025. Additionally, he highlighted Malaysia’s economic growth strategy, which includes accelerating the transition to high-value industries and attracting larger investments.
Anwar expressed Malaysia’s aim to secure private investments of RM300 billion (approximately S$88 billion) annually until 2025, with the goal of making Malaysia a preferred investment destination through enhanced competitiveness.
The Prime Minister sought to reassure investors about Malaysia’s ability to restore financial prudence and achieve the target of becoming a high-income nation by 2025. Nevertheless, concerns have arisen in the political landscape, with one lawmaker from Anwar’s ruling coalition indicating intentions to join the opposition in protest of the decision to drop charges against Deputy Prime Minister Ahmad Zahid Hamidi.
Malaysia had set a target in February for the fiscal deficit to decrease to 5 percent of GDP this year, with Anwar pledging to manage escalating debt through anti-corruption efforts and subsidy reforms. Data from the first half of the year have indicated that the budget deficit may perform better than anticipated, primarily due to increased revenue, as suggested by economist Nazmi Idrus of CGS-CIMB in a note last month.
It’s worth noting that the previous five-year plan, presented by former Prime Minister Najib Razak, had aimed for a balanced budget by 2020. This goal was abandoned after his government faced scandal and ultimately collapsed, leading his successor, Mahathir Mohamad, to revise the plan in 2018. Subsequently, the 2021 to 2025 plan was introduced by former Premier Ismail Sabri Yaakob.
