Expectations for Budget 2022: Revive and recharge the economy (Part 2)

POLICYMAKERS must figure out how to fix a shattered economy, rebuild from the damage of the pandemic to become more resilient and to safeguard it against the next catastrophe. The Budget 2022 marks the second year of the 12th Malaysia Plan (2021-2025).

It should be a pro-growth and transformational budget that puts its foot on a more targeted approach of spending programmes.

Immediate priority is to craft a swift economic recovery plan for generating growth, enhancing economic resilience, revitalising private investment, creating jobs, reskilling and upskilling of manpower.

There is also a need to overcome fiscal revenue constraints in the face of high expenditure to support pro-growth and business recovery.

The Budget 2022’s pre-statement has accorded priority on medium-term revenue strategies such as managing revenue leakages via plugging revenue loss from smuggling and counterfeiting; strategies to increase tax revenue through increased tax compliance; and tax incentives review.

In this regard, Budget 2022 could implement some initiatives and review of tax treatment to curb elements of revenue leakage or harmful practices as well as to address cross-border tax evasion in digital economy activities.

These include the implementation of special voluntary disclosure programme (SVDP) for indirect taxes administered by the Royal Malaysian Customs Department; introduction of a tax compliance certificate as a pre-condition for tenderers to participate in Government procurement; and the implementation of the tax identification number (TIN).

Capital gains tax

Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz

The Finance Minister has already said that a reduction in corporate tax rate is not possible given a tightness in fiscal space and narrow tax base.

He also said that this is not the right time to re-introduce the goods and services tax (GST). Nevertheless, we think that Budget 2022 can make a policy statement on the GST, paving the way for its eventual implementation in 2023.

Any introduction of new taxes, including the much talked about capital gains tax and windfall tax, are untimely given the current uneven pace of economic recovery.

Capital gains tax reduces savings and investment incentives and greatly dampens the prospects for increased productivity and economic growth, hinder entrepreneurships as well as erode our competitiveness in attracting domestic and foreign investment.

We are looking for tax and non-tax incentives, continuation of financial assistances and relief for households and businesses, sector-specific funds and grant to drive the economic recovery through stimulating consumerism, improving business investment prospects, electrifying green investment and infrastructure, and tourism support.

Vulnerable households and informal sector must continue to be given appropriate social safety protection in terms of income, jobs and skill support.

Backed by the lifting of movement restrictions and re-opening of economic and social sectors in stages in 4Q 2021, Budget 2022 is expected to boost households’ discretionary consumption and sentiments amid a still weak job growth (jobless rate at 4.6% in August).

These could include a continuation of targeted cash handouts for B40 households; higher amount of e-wallet payment which has to be spent within a stipulated period; higher special personal tax relief; higher tax relief limit each for contribution to Employees Provident Fund (EPF) and insurance in order to relieve the financial burden of wage earners.

Support property sector

Pic credit: Microsoft News

Higher resources allocation for improving the skilling/re-skilling/upskilling development ecosystem would also be a welcome move.

Top of Budget 2022’s allocation is to help people develop new skills, start an apprenticeship, get better paid jobs and helping small business owners get the training, skills and technology they need to compete with bigger firms and become the high growth companies of the future.

Measures to support the property and automotive sectors include extending the current home ownership campaign (HOC) till Dec 31, 2022 (from Dec 31, 2021); extending the real property gain tax (RPGT) exemption for another year; and extending the 50% sales tax exemption on completely built-up imported passenger cars till Dec 31, 2022 (from Dec 31, 2021.

Businesses need to make up for lost time to recoup shattered business revenue and increase investment. Many badly hit firms are eager to see tax reliefs and incentives to support their revival while investing in digital technology and automation.

Besides the continued provision of concessionary interest rate facilities and soft loan funds as well as grant to support micro and SMEs’ business restructuring and expansion, businesses would welcome the following relief support in Budget 2022 to ease pressure on operating costs.

Among these are no increase in minimum wage and statutory payment (such as Employment Insurance System); 25-50% discounts to all companies with foreign worker permits; waiving levy contribution for the Human Resources Development Fund until Dec 31, 2022; and extending the wage subsidy programme until June 2022 for affected industries.

Also worth considering is the extension of special tax deduction to premise owners who offer rental discount; continued targeted repayment assistance; waiving tax instalments for companies (Form CP204) and individuals (Form CP500) due in year 2021-2023; and payment of balance of tax for year of assessment 2021-2023 in three monthly instalments for companies (Form C) and individuals (Form B).

Other forms of assistance

We believe that Budget 2022 would also add considerably green investment and infrastructure spending, including public healthcare as the core of our economic recovery by incorporating the planned projects identified in the 12th Malaysia Plan.

The ongoing investment in infrastructure comprises new investment in roads and rail, schools and hospitals, and housing.

Green infrastructure which increases resilience to environmental challenges with the contribution of green technology come from five sectors, namely energy, transport, building, waste and water.

Additionally,, the Government should leverage this opportunity by introducing a landmark budget to help ramp up public healthcare facilities. Public healthcare spending at 2% of gross domestic product (GDP) currently must be increased progressively to at least 4%.

For the sector-specific, support, recovery and re-set plan will provide support for the tourism sector nationwide to enable the reset of tourism to be more sustainable and resilient.

The micro and SMEs, start-up, and e-hailing will be supported by business digital training, advisory and facilitation programmes.

Special reinvestment allowance, accelerated capital allowance as well as the automation fund should also be given to support business and industry transformation towards the Industry 4.0. – Oct 12, 2021

 

Lee Heng Guie is the executive director of the think-tank, Socio-Economic Research Centre (SERC).

The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.

 

 

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