Prime Minister Datuk Seri Anwar Ibrahim’s Budget 2025 announcement last Friday failed to excite investors and the business community as evidenced by Bursa Malaysia’s lack of buying interest and slight drop in market closing to 1,645.68 on the first trading day post-announcement. The budget aims to tax the wealthy to support those in need but this approach risks stifling the entrepreneurial spirit and pushing wealth creators to relocate their investments.
The proposed 2% tax on dividends exceeding RM100,000 primarily targets high-net-worth individuals, potentially deterring major investors. Coupled with Malaysia’s corporate tax rate of 24%, which is less appealing compared to neighboring countries like Singapore (17%), Indonesia (22%) and Thailand (20%), this could diminish the attractiveness of Malaysia as an investment destination. Furthermore, the budget expands the sales and service tax (SST) to cover a wider array of services, creating disincentives for consumption and investment.
Instead of imposing new taxes, reintroducing the Goods and Services Tax (GST) which has successfully generated revenue in over 140 countries could provide a more balanced solution. GST could yield more than RM40 billion and target the shadow economy, currently estimated at RM300 billion. Higher taxes on businesses and individuals could reduce disposable income leading to decreased consumer spending and lower economic growth.
The budget’s approach to rationalizing subsidies also lacks clarity. While subsidies aim to assist those in need, details remain vague particularly regarding targeted subsidies for RON 95 fuel which are set to begin in mid-2025. The government must establish clear implementation mechanisms to avoid confusion and ensure that the intended beneficiaries receive adequate support. Ultimately, the effectiveness of these measures will be judged by their impact on rising living costs and the quality of life for Malaysians.
