Anwar hints at new taxes as Malaysia seeks to narrow budget gap

MALAYSIA – Malaysian Prime Minister Anwar Ibrahim has signalled that the South-east Asian nation may be considering additional taxes to boost state revenue and meet the target of almost halving the fiscal deficit by 2025.

Malaysia will “broaden the tax base, diversify tax sources as well as improve taxation through technology”, the Premier, who is also Finance Minister, told Parliament on Monday as he unveiled the mid-term review of the 2021 to 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 per cent of gross domestic product (GDP) by 2025 as it sees the economy expanding by at least 5 per cent through the end of the five-year period under the 12th Malaysia Plan presented in 2021.

A pandemic-induced spending to shield the economy widened the deficit to 6.4 per cent of GDP in 2021 before the shortfall eased to 5.6 per cent last year when the government also boosted the debt ceiling to 65 per cent of GDP from 60 per cent.

“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 Datuk Seri Anwar’s remarks. The plan to introduce capital gains tax next year had long been relayed by this government.

Mr Anwar told lawmakers “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.

He also said Malaysia’s economic growth will be supported by a focus on accelerating the transition to high-value industries and bigger investments.

He said the country was targeting private investments of RM300 billion (S$88 billion) annually until 2025. “The government aims to make Malaysia the preferred destination for investors by enhancing competitiveness.”

Mr Anwar, who faced criticism after

Deputy Prime Minister Ahmad Zahid Hamidi

was freed of graft charges, sought to reassure investors that Malaysia can restore financial prudence and meet the target of becoming a high-income nation by 2025. A lawmaker from Mr Anwar’s ruling coalition on Sunday said he will join the opposition to protest against a

court decision to drop charges against Datuk Seri Zahid.

Malaysia in February set a target for the fiscal gap to ease to 5 per cent of GDP this year, with Mr Anwar pledging to manage ballooning debt through graft-busting and subsidy reforms.

Data from the first half of the year suggests the budget gap would be better than expectations on higher revenue, according to a note last month by economist Nazmi Idrus of CGS-CIMB.

The previous five-year plan, presented by then 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 to 2025 plan was presented by former premier Ismail Sabri Yaakob. BLOOMBERG, REUTERS