More incentives likely in budget
Economists forecast tax breaks, ush for technology
“I would think this will be a people-friendly budget that would help with the feel-good factor, especially for the consumer.”
Vincent Lau
KUALA LUMPUR: The government will likely announce a bigger-than-usual number of incentives for the various sectors of the economy in the upcoming Budget 2023.
When contacted by Starbiz, economists and analysts generally said that there was a high chance that a number of labour-reliant industries could benefit from tax incentives and are expecting priority to be given to automation and levelling up technology for industries, including small and medium enterprises (SMES).
They also noted that there could be a need to support other less-visible industries such as the tourism sector, which has still not fully recovered from the Covid-19 pandemic.
“I would think this will be a people-friendly budget that would help with the feel-good factor, especially for the consumer.
“Apart from that, there may likely be assistance possibly in the form of tax breaks for industries to continue the push towards higher automation and adoption of the Internet of Things (IOT),” explained Rakuten Trade’s head of equity sales Vincent Lau.
“Doing this would be a broad stroke to help various industries cope with the ongoing labour shortage and rise in the labour cost.
“As indicated by recent reports, the focus will likely be on broadening good Internet access through the expansion of 5G infrastructure in the country,” he added.
This would then necessitate more capital spending for such types of infrastructure moving forward, Lau noted.
He also anticipates that there might be some updates or reiteration of commitment on some big-value construction projects that had been announced previously such as the East Coast Rail Link or the Pan Borneo Highway project, although the government may be fiscally constrained to announce further projects on this front.
Meanwhile, Socio-economic Research Centre executive director Lee Heng Guie said SMES and the tourism sector will likely be provided more fiscal support, given that “they are still challenged by a tougher operating environment”.
“SMES are still facing many challenges such as increased business costs, shortage of workers, lack of capital and skills for automation and digitalisation, as well as pressure to adopt environmental, social and governance (ESG) standards,” Lee pointed out.
Therefore, Budget 2023 could take into consideration easing the cost of doing business, through a reduction in the concessionary tax rate to 15% from 17% currently on the first chargeable income of RM600,000 which can be raised to Rm1mil, he added.
Lee also suggested a higher fund allocation for automation, digitalisation and facilitation funds with low interest rates and a simplified application process to help SMES transition towards ESG best practices.
Meanwhile, he highlighted that the tourism sector still had a “long way” to go towards recovery to pre-pandemic levels, given that the borders with China are still closed.
Tourists from China formed a substantial number of total tourist arrivals in Malaysia before Covid-19.
“It is good for the government to allocate a higher tourism fund, including promotion, tourism products and services to uplift the sector’s growth potential to leverage on the weakening ringgit.
“The low-hanging fruit measures include
continuing to waive the tourism tax, and allowing a higher personal income relief on local tourism expenditure to RM3,000 from RM1,000,” Lee said.
He added that there was a need for the government to engage more closely with private tour agencies and overseas promotion agencies to drive Malaysia as the preferred destination in Asia and the Asean region.
Other than industries, Lau said the consumer sector at the other end of the spectrum could benefit from any direct cash assistance to the people that would spruce up the feelgood factor.
“This would benefit the consumer sector as more money would be spent on such goods and services, and they would likely also include the ewallet operators,” he said.
Meanwhile, RHB Research said the government was unlikely to increase gaming taxes, as the industry was badly affected by the Covid-19 pandemic.
“We also believe the number forecast operators or NFOS will get to maintain 22 special draws in 2023 to maximise tax revenues,” added the research house in its Budget 2023 preview report.
RHB Research also said the automotive sector may receive a boost from incentives to expedite electric vehicle production and adoption, with a possible chance of greater clarity on the forthcoming excise duty reforms.
The research house said more punitive taxes on the brewery and tobacco sectors was improbable, as it would likely be counter-productive to the growth of illicit brands and would not translate into higher tax revenues for the government.
Instead, it advocated a tighter regulatory framework and enhanced enforcement, which could be more useful tools to improve tax collection from these sectors.
“We have low expectations on any significant incentives for the property sector.
“While the construction sector may see headlines from some pre-polls pump-priming, this is likely to be skewed towards smaller contractors,” RHB Research said.
“Larger (construction) projects could still be announced, but these would require private funding requirements,” it added.
This is because of the current state of public finances which remained tight, considering Malaysia’s total debt-to-gross domestic product ratio of 63.8% as at end-june 2022 compared to 63.4% as at end-december 2021, added the research house.