Malaysia Budget 2023 Summary and Highlights

Unofficial summary and highlights for Malaysia’s Budget 2023 presented by finance minister Datuk Seri Anwar Ibrahim. 

Malaysia’s Background for Budget 2023

Firstly: The government has inherited a burden of excessive debt.

• The country’s debt is expected to reach RM1.2 trillion or more than 60% of GDP by 2023.
• The debt and liabilities amount to RM1.5 trillion or 81% of GDP.
• Debt servicing payment this year exceeded the maximum limit of 15% of revenue at 16%, totaling RM46 billion, which is only for interest on loans.
• The government has been having a deficit budget for 25 years (!), causing national debt to continue to increase, raising questions about whether it is betraying the trust of future generations by burdening them with debt.

Secondly: Malaysia is experiencing a decline in responsible administration.

• Corruption and malpractice have become systemic, undermining government administration and damaging the country’s image.
• The Corruption Perceptions Index (CPI) in 2022 has dropped to 61, compared to 29 in 1998.
• The National Audit Report 2020 and 2021 reveal losses of nearly RM3 billion, including embezzlement, irregular payments, and the loss of public funds.
• The misuse of subsidies for diesel last year alone amounted to nearly RM10 billion.
• These various irregularities have had a negative impact on the country and must be stopped to enable progress.

Thirdly: The country needs to navigate global economic uncertainties.

• Inflation continues to be a concern due to the high price of global commodities and disruptions to food supply chains caused by the Russia-Ukraine conflict.
• The International Monetary Fund (IMF) predicts moderate global economic growth of 2.9% in 2023, compared to 3.4% in the previous year.
• World trade is also forecast to be slow, with growth projected at only 2.4%, compared to 5.4% in 2022.
• Although Malaysia’s GDP grew by 8.7% in 2022, it needs to be viewed alongside quarterly declines of 3.8%, 3.5%, 1.9%, and negative 2.6% to fully understand the economic performance.

Fourthly: Investment has not yet achieved pre-pandemic levels.

• Last year, Malaysia achieved investments worth RM297.5 billion, which is 9.4% lower than the RM328.5 billion achieved in 2019.
• Malaysia’s position in the World Competitiveness Ranking by the Institute for Management Development (IMD) has also dropped to 32nd place, compared to 12th place previously.

Fifthly: Major economic challenges faced by the rakyat.

• Inflation in 2022 is at a rate of 3.3%, with food inflation recorded at a high of 5.8%.
• Inflation is expected to continue to rise, causing a burden for rakyat.

Breaking Down the Details of Budget 2023

The 2023 Budget in Malaysia will be the first step towards implementing the MADANI Malaysia Development Framework.

The 12 key initiatives of the budget are based on three main objectives, namely:

1. Sustainable economic growth
2. Institutional and governance reforms to restore confidence
3. Social justice to narrow the income gap

1st Initiative: Sustainable Fiscal Management

The budget emphasizes sustainable fiscal management and economic expansion, and the government is expected to exceed its GDP growth forecast of 4.5% due to the implementation of reforms and a renewed investor confidence. The government aims to reduce the fiscal deficit to 5% in 2023, and a new Fiscal Responsibility Act will be introduced to ensure more transparent and accountable economic policies in the future. The budget also includes a significant increase in development spending, particularly for poverty eradication, rural infrastructure and public amenities.

ASB higher dividends for those in need (87% of members with savings below RM30k given 5.1 cents/unit – additional 0.5 cents/unit)

Electricity tariffs maintained for SMEs (but tariffs increased for all large companies except for food and agriculture)

No GST implementation

Luxury Goods Tax to be introduced

Explore introduction of Capital Gains Tax (at a low rate) on disposal of unlisted shares by companies

2nd Initiative: Fulfilling Rakyat’s Economic Needs

The budget addresses measures taken by the Malaysian government to boost the economy, especially for micro-, small-, and medium-sized enterprises (MSMEs). The government plans to provide various facilities, including tax cuts and financing schemes, to help MSMEs recover from the pandemic’s impact.

The budget will provide tax cuts of 2% (from 17% to 15%) on taxable income for the first RM150,000.

The government will allocate RM50 million to build and upgrade 3,000 small-scale stalls and kiosks for traders across the country.

There will also be made available financing schemes for MSMEs by government agencies such as Bank Negara Malaysia, BSN, and TEKUN, with a total amount of up to RM40 billion. This scheme aims to assist micro-entrepreneurs and small traders, including women and youth.

Government will cover the cost of driving tests for motorcycle, taxi, bus, and e-hailing licenses.

3rd Initiative: Disaster and Calamities Readiness

Covers preparation and measures required to face disasters and calamities in Malaysia. The first section highlights the importance of proper planning to tackle flood-related issues in the country. It emphasizes the need for proper research and planning before the implementation of flood prevention projects. Budget 2023 also highlights the cancellation of a flood prevention project that was implemented in haste, and the importance of conducting such projects through a tender system.

The second section highlights the importance of environmental sustainability and the need to protect natural resources. It emphasizes that humans’ misuse of natural resources, deforestation, and environmental pollution are significant reasons for major disasters. The government aims to balance economic growth with sustainable and balanced living while maintaining a healthy relationship between humans and nature. Budget 2023 emphasizes that ecological conservation is critical, and the government aims to provide an Ecological Fiscal Transfer (EFT) for biodiversity conservation to the states, focusing on habitat protection and reforestation. The government has allocated RM38 million for a green technology program to promote eco-friendliness and sustainability in the country.

4th Initiative: Attracting High Impact Investments

The first step involves easing investment procedures, empowering ecosystems, and encouraging meaningful investments that can drive economic growth and create job opportunities with decent salaries. The government is also working to improve business procedures and provide incentives to local authorities to facilitate investment implementation.

The second step involves investment in priority sectors such as Electrical and Electronics (E&E) and aerospace, with tax incentives and financing provided to companies that invest in these sectors. The government is also restructuring investment promotion agencies and tax incentives to support economic activity. Efforts are also being made to address the lack of local talent that prevents foreign investors from investing and operating in Malaysia. The government plans to collaborate with international companies to provide internship opportunities for Malaysian students studying engineering overseas.

Finally, the Tun Razak Exchange (TRX) has been mandated to become a global financial hub that attracts high-quality foreign investment and strengthens the country’s business ecosystem.

5th Initiative: Public Sector Reform

The government is committed to implementing institutional and governance reforms to eradicate corruption and abuse of power. Government agencies such as LHDN, SPRM, and PDRM are actively investigating corruption and scandals such as those named in the Pandora Papers. The government also aims to increase transparency and accountability in government procurement to prevent the misuse of public funds. The government also plans to provide protection for whistleblowers to encourage reporting of corruption.

The government aims to speed up the completion of infrastructure projects such as upgrading dilapidated schools and clinics and improving road safety.

Increase the procurement limit for repair works of schools and clinics from RM500k to RM1 million and the open tender limit from RM100k to RM200k.

Allocate RM1.2 billion to upgrade 400 dilapidated clinics and 380 schools.

Allocate RM2.7 billion to maintain and upgrade federal roads and RM1.5 billion to improve rural roads.

Provide RM50 million to fix potholes in federal roads and RM100k to each district to repair local roads.

Addressing scams and bankruptcy.

Kill switch for all financial institutions to allow users to immediately freeze their accounts and ATM cards.

Govt amending Insolvency Act 1967 to enable bankruptcy cases to be discharged more quickly. Immediate release of cases owing less than RM50k starting March 1 will allow 130,000 people to be released from bankruptcy status.

Govt aims to enact Consumer Credit Act and set up consumer credit monitoring board to regulate companies providing consumer credit such as “Buy Now Pay Later” schemes this year.

6th Initiative: Strengthening Public-Private Partnership

Efforts to strengthen public-private partnership and cooperation in Technical and Vocational Education and Training (TVET) are necessary to address high youth unemployment rates and underemployment issues. Despite the government spending up to RM6.7 billion for TVET, 90% of TVET graduates are paid low wages of around RM2k per month. The government aims to emulate Penang’s successful collaboration with electrical and electronics industries in providing decent-paying jobs for TVET graduates. Under the initiative, government-linked companies will take over the operation of TVET institutions such as community colleges and training institutes to provide training programs that meet industry demands.

The Dual National Training Scheme (SLDN) will be strengthened with a RM50 million allocation, while PERKESO will provide incentives for employers to hire graduates, especially TVET graduates, for higher-paying jobs. The government will also encourage young people to improve their skills and earn more through micro-credential training programs, and HRDCorp will implement skills training programs for employees of registered employers with accumulated levies. Government-Linked Companies (GLC) will also offer 35,000 job opportunities for youth, TVET graduates, and vulnerable groups.

7th Initiative: Digital Agenda

GLCs and Government-Linked Investment Companies (GLICs) have a significant role in driving the country’s economy, with an estimated investment value of RM50 billion this year. Among the investment focuses are innovative start-up companies. To emulate their success, GLCs such as Khazanah and KWSP will invest RM1.5 billion in innovative and high-growth local start-ups. The government also plans to extend tax cuts for listing expenditures on ACE and LEAP Markets until 2025, and tax cuts will also be expanded to cover the listing costs of technology-based companies on the Main Market of Bursa Malaysia.

Tax deduction of up to RM1.5 million for firms that list on Bursa Malaysia’s ACE and LEAP Markets until assessment year 2025. Tax rebate is also extended to tech companies that list on the Main Market.

Government agencies will continue to increase capital space and attract local talent in the high innovation sector. The Malaysia Coinvestment Fund (MyCIF) will allocate RM40 million as a matching fund to support alternative financing methods, bringing the total funds under MyCIF to RM300 million. The Securities Commission will also facilitate more second markets for private market instruments to increase liquidity and enable better price discovery. To encourage the listing of high-growth local technology companies, the government will allow the issuance of dual-class shares.

GLC and GLIC companies also contribute to implementing various programs for the welfare of the people and the country. This includes corporate social responsibility contributions of up to RM250 million to focus on efforts to help the poorest segments of society, including urban poor communities, to improve their quality of life. In addition, Khazanah Nasional Berhad will lead the formation of the National Heritage Fund to attract private participation in restoring historic heritage buildings, including the redevelopment of Sultan Abdul Samad Building and Carcosa Sri Negara in collaboration with ThinkCity.

ThinkCity will also collaborate with DBKL to participate in efforts to re-define urban life through location beautification projects and to elevate the potential of historical and cultural assets. A total of RM30 million will be allocated to improving the livability of public housing in Kuala Lumpur. The government will also allocate RM50 million to the states of Melaka and Penang to continue preserving their UNESCO-recognized world heritage sites.

9th Initiative: Eradicating Hardcore Poverty

Eradicating hardcore poverty will be focused on providing cash assistance and implementing the People’s Income Initiative (IPR). The government will allocate RM750 million in 2023 to the Ministry of Economy to execute the IPR, which focuses on empowering the poor to increase their income potential. The program includes monthly assistance and facilities to help the participants purchase equipment or receive wage subsidies. The government aims to help participants earn RM2,000 to RM2,500 during the 24-month monitoring period and generate their income afterward. Additionally, the government will update its beneficiary database to ensure no one is left out of receiving assistance.

The state governments of Sarawak and Sabah will continue their poverty eradication programs with the help of some of the petroleum revenue, and the Ministry of Finance will allocate a portion of the Wang Ehsan funds from Kelantan and Terengganu to help the poor. The government will also provide RM30 million to support UNDP and the cross-party efforts to achieve Sustainable Development Goals (SDGs), including RM10 million for community garden programs to support food security agendas.

10th Initiative: Minimizing the Cost of Living Burden

Since the beginning of its administration, the main issue that the government has paid attention to is the cost of living for the people. This year, the government has provided up to RM64 billion in the form of subsidies, assistance, and incentives. A significant amount of these funds are aimed at minimizing the cost of living through price controls, financial assistance, and providing services to the majority of the people.

Payung Rahmah: Efforts to assist the needy and vulnerable groups. Menu Rahmah Initiative organizes the sale of a set meal at a price of only RM5. Jualan Rahmah, offers basic goods at prices up to 30% cheaper than the market. The government provides RM100 million to implement this program in each of the 222 parliamentary constituencies. The government will also increase the allocation from 200 million to RM225 million to expand the basic necessities distribution program to 25 new areas, including Paloh and Passin, Sarawak, Pasir Raja, Terengganu, and Kuala Krai, Kelantan.

Sumbangan Tunai Rahmah: Government distributed cash contributions to the B40 group under Sumbangan Tunai Rahmah (STR) Phase 1 program. Households earning less than RM2.5k are eligible to receive contributions of up to RM2.5k, depending on the number of children. The government will also provide an additional contribution of RM600 to the poorest STR households according to e-Kasih data. This contribution will be distributed in the form of food baskets and vouchers for basic food items worth RM600. Overall, the STR will help alleviate the cost of living burden for 8.7 million recipients with a budget of nearly RM8 billion. Although STR is associated with assistance to the B40 group, considering the number of recipients, STR has actually benefited more than 60% of the country’s adult population.

For 2 million youths aged 18 to 20, the government will offer the e-Tunai Belia Rahmah credit of RM200 with an allocation of RM400 million.

Assistance for Small Rice Farmers and Rubber Smallholders: People who earn their income as small rice farmers and rubber smallholders continue to be given appropriate assistance. The government will continue to distribute various subsidies and incentives such as rice prices, rice fertilizer, and rice huma with an allocation of RM1.6b. Cash contributions are also given to rice farmers amounting to RM200 per month for three months or one season, involving 240 thousand farmers with an allocation of RM228m. Bernas to allocate 30% of net profit from rice imports towards farmers.

Lower M40 Taxes: Reduce 2% for income level RM35,000 – RM100,000 saving up to RM1,300.

Upper M40 & T20 Taxes: Increase 0.5% to 2.0% for income RM100,000 to RM1 million.

11th Initiative: Harmony and Unity

Efforts to maintain harmony and unity among the people of Malaysia, regardless of ethnicity or region, are crucial. Social justice must be upheld to reduce the development gap between states and ensure that everyone benefits. The government will not tolerate those who attempt to incite hatred based on race or skin colour, and anyone who does so will be held accountable.

To celebrate diversity and bridge the gap between different groups, the government has allocated RM50 million for programs such as the Kembara Perpaduan Malaysia Madani (Malaysia Madani Unity Journey) and Ini Warisan Kita (This is Our Heritage).

RM20 million has been set aside for a program that involves parents, communities, and NGOs in the development of schoolchildren.

RM50 million has also been allocated for the maintenance and repair of non-Muslim places of worship throughout the country.

Sabah and Sarawak will continue to receive development funding of RM6.5 billion and RM5.6 billion, respectively.

The government will also be providing funds for infrastructure projects and amenities such as clinics, banks, and courts to serve the needs of people in remote areas. Finally, the government is committed to accelerating the implementation of the Pan Borneo Highway, the Sabah-Sarawak Link Road, and other projects in Sabah and Sarawak, and will hand over the power to approve federal projects in these states to their respective technical departments to hasten their implementation.

12th Initiative: Providing High-Quality Basic Necessities

Efforts to improve the well-being of the people by improving essential facilities such as public transportation, education, healthcare, and housing. The government has increased its allocation to the State Government based on the Level of Economic Development, Infrastructure, and Welfare (TAHAP) from RM330 million to RM400 million, which can help less-developed states such as Kedah and Perlis.

Regarding transportation, the government will continue initiatives such as

Monthly My50 pass to benefit nearly 180,000 users

Unlimited myBAS50 Travel Pass under SBST for the benefit of Johor Bharu residents RM150 million to expand the implementation of the SBST program to Melaka, Kuching, and Kota Kinabalu.

For education, the Ministry of Education will receive the highest allocation of RM55.2 billion compared to RM52.6 billion in 2022. Additionally, RM2.3 billion will be allocated to ensure the best infrastructure and learning facilities in all schools, including upgrading buildings and infrastructure in 380 poor schools, especially in Sabah and Sarawak, through a special acquisition method for urgency.

PTPTN: borrowers 20% discount for 3 months from 1 March 2023, and moratorium application open for PTPTN borrowers with income less than RM1.8k per month

EPF: Tax relief increased from RM8k to RM10k for medical expenses. Able to utilize tax relief for life insurance / takaful for EPF up to RM3k. Matching grant for EPF self-contribution (i-Saraan) increased from RM250 to RM300. Members between ages 40 to 54 with less than 10k in Account 1, Government will provide RM500 once off contribution.

ASB: ASB & ASB2 investment limit increase from RM200k to RM300k

Concluding Statement

We now have a great responsibility to manage the country, from fighting corruption that robs people of the opportunity to enjoy a more meaningful life, to managing governance that reflects our principles of spending towards empowerment and socio-economic mobility for all. Even though there may be differing political views, we should not let these differences prevent us from making meaningful changes. If we compete, let us not race to the bottom, but focus on the principle of ‘fastabiqul khairat’, which means racing to do good.

Summary Related to Personal Finances

Adapted from contribution by Rafiq Hidayat, Licensed Financial Planner & Managing Director of Wealth Vantage Advisory 

• No GST
• Introduction of Luxury Goods Tax (Cukai Barangan Mewah)
• Tax Rate reduction by 2% for income levels RM35k to RM100k
• Tax Rate increase from 0.5% to 2% for income levels between RM100k to RM1 million.
• Tax relief increased from RM8k to 10k for medical expenses
• Tax relief available for EPF i-Lindung life insurance / takaful up to RM3k
• Explore introduction of Capital Gains Tax (at a low rate) on disposal of unlisted shares by companies
• Excise duty for vape/ electronic cigarettes
• ASB & ASB2 limit increased from RM 200k to RM300k
• PTPTN repayment 20% discount for 3 months from March 2023
• Moratorium available for PTPTN borrowers with income below RM1.8k per month
• Matching grant for EPF i-Saraan increased from RM250 to RM300
• EPF contributors between ages 40 to 54 with less than 10k in Account 1, will receive RM500 once off
• Amnesty period from 1 June 2023 to 31 Dec 2024 (LHDN / Customs) on penalties
• SME reduction of tax rate from 17% to 15% for 1st RM150k profit (savings up to RM3k pa)
• Electricity tariff maintained for all domestic users and SMEs (increased for larger companies except food & agriculture)
• Insolvency Act amended so bankrupts can be released from the status automatically in a shorter time frame.
• Regulation of consumer credit industry including BNPL by Consumer Credit Act (Akta Kredit Pengguna) and Consumer Credit Monitoring Board (Lembaga Pemantauan Kredit Pengguna)
• Continuation of My50 monthly pass, and similar programmes to be introduced to JB, Melaka, Kuching, and KK
• Government to subsidize license for B2, taxi, bus, and ehailing
• Continuation of current tax incentive for child care, RM180 subsidy for government servants for child care
• Inisiatif Pendapatan Rakyat (IPR) will be given monthly and monitored regularly
• Sumbangan Tunai Rahmah (STR) (rebranding on BSH, BR1M, etc), – expected to reach 60% of adults
• Menu Rahmah RM5 set
• Jualan Rahmah up to 30% off basic necessities

Income Tax Changes Proposed

(Source: MoF)

You May Also Like

• Teks Ucapan Bajet 2023 (Official MOF)
• Malaysia Budget 2021 Highlights
• Malaysia Budget 2020 Highlights
• Top and Worst Performing Sectors in Malaysia
• 6 Important Things to Know About the Malaysian Economy

What excites you about Malaysia’s Budget 2023?