Malaysia Budget 2025: Will PM Anwar cut petrol subsidies, impose new taxes to improve public finances?

CNA10-16

KUALA LUMPUR: In the lead-up to the unveiling of Malaysia’s Budget 2025 this Friday (Oct 18), most of the public attention has been on a singular issue: Whether the government will finally slash ...

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This is usually done by earning more and spending less. \nThe latter is a delicate balancing act: Mr Anwar must trim Malaysia’s spiralling subsidy and social assistance bill, but not so much that it triggers public wrath.\nOn Jun 10, Malaysia cut diesel subsidies in a move that was expected to save RM4 billion (US$928.9 million) a year. Diesel prices were floated and quickly rose by 56 per cent, and unhappiness grew despite the cash assistance that was given to some affected segments. \nThis included low-income private diesel owners who were able to apply for a monthly cash payout of RM200 to defray the cost of the fuel.\nWhat’s next is the blanket subsidies for RON95 petrol, which make up most of the RM81 billion that Malaysia spent on subsidies in 2023 and are said to unfairly benefit high-income households. The aim is to reduce this bill to RM52.8 billion this year.\nWhile analysts told CNA that Malaysia is expected to give more clarity on plans to cut subsidy spending and raise tax revenues on Friday, they do not see Malaysians being immediately hit with rising prices.\nThey predicted that Mr Anwar, who doubles as Finance Minister, will not immediately remove blanket petrol subsidies and bring back the Goods and Services Tax (GST).\nThis is because the government aims to spread out such moves, wary of public concerns over costs of living and the need for more time to ensure such moves are implemented smoothly, they said.\nThe analysts also added that Malaysians could instead see a bump in their salaries as wage policies are tweaked to combat inflation.\n\n\n\n\nMr Anwar recently told CNBC - the American business news channel - that the budget will focus on raising income levels amid rising inflation, and after committing to boost civil servant salaries, he has hinted at introducing some “pressure” on the private sector to follow suit.\nThis could involve moves to review individual tax relief policies, expand the progressive wage policy, or raise the minimum wage, which currently stands at RM1,500, the experts told CNA.\nFriday’s budget comes amid a backdrop of Malaysia's strengthening economy and currency, which have been attributed to the government’s clear policies in growth sectors and rising investor confidence.On Oct 8, the World Bank upgraded Malaysia’s growth outlook to 4.9 per cent from 4.3 per cent, saying that the country is expected to continue fiscal consolidation.\n\n\n\n\n\n      Malaysia Prime Minister Anwar Ibrahim displays the budget booklet ahead of its presentation in parliament on Feb 24, 2023. (Photo: CNA/Fadza Ishak)\n    \n\n\n\n\nDespite the positive signs, Mr Anwar himself acknowledged in an Oct 10 post on X that there was “much room” for improvement in the country’s fiscal governance and performance.\nFor instance, the government is seeking to manage its RM1.5 trillion debt, and is well on its way to reducing its fiscal deficit to 4.3 per cent this year, with an eye on 3 per cent by 2026.\nApart from diesel, the government has also adjusted subsidies for chicken and electricity as it tries to reduce spending on subsidies and social assistance by RM11.5 billion, a target outlined in Budget 2024.\nWhile the World Bank said in its October report that these efforts were expected to lower subsidy spending, it warned further rationalisation was needed to achieve the target, together with measures to cushion the impact on inflation and vulnerable groups.\nAfter the fallout from the move on diesel, Malaysia-based economist Shankaran Nambiar told CNA that Mr Anwar might take a more cautious approach with the rationalisation of petrol subsidies.\n“The removal of diesel subsidies was not appreciated by large sections of society, so it will make sense for the government to take a pause before introducing subsidy rationalisation of petrol, an act that is bound to be unpopular,” he said.\n“It might be mentioned (at Friday’s budget), but he'll want to gauge sentiment and wait-and-see before actually implementing.”\nSLASHING PETROL SUBSIDIES\nEconomy Minister Rafizi Ramli said in November last year that the government will roll out a targeted petrol subsidy programme in the second half of 2024, but authorities have since remained largely silent on any sort of timeline for implementation.\nBank Muamalat Malaysia chief economist Mohd Afzanizam Abdul Rashid said Mr Anwar could give more details on the move on Friday, including timeline and guidelines on how to apply for cash assistance for those eligible.\nSome diesel vehicle owners who might have qualified for assistance were caught off guard when the sudden announcement on removing subsidies led to a spike in diesel prices overnight, Dr Afzanizam pointed out.\nThe government could use the diesel episode as a “template” to implement the lessons learnt in its petrol rollout, making the experience more “seamless” for those who will be affected, he said.\n“That’s very important, because the moment you decide to cut subsidies, the price of RON95 will go up, and typically, other prices of goods and services will follow suit,” he added.\n“So for those who qualify for cash transfers but don't get them in a timely fashion, their purchasing power will be affected.”\n\n\n\n\n\n      A petrol station in Shah Alam, Selangor. (Photo: CNA/Fadza Ishak)\n    \n\n\n\n\nMeanwhile, Mr Lee Heng Guie - executive director of the Socio-Economic Research Centre (SERC) Malaysia - said petrol prices should not be immediately floated but gradually raised, highlighting that petrol has a “wider user base” than diesel.\nNow is also an opportune time to start the move, he said, noting that the price hikes will not be as drastic given that global oil prices have remained low despite the expanding conflict in the Middle East, a critical oil-producing region.\n“It’s good having to do it when global oil prices have not surged on the back of escalating tensions in the Middle East,” he added.\n\n\n\n\n\n \n\n\n\n\n\n\n\n\nIn an interview with CNA published on Monday, Malaysia’s Second Finance Minister Amir Hamzah Azizan remained tight-lipped when asked when petrol subsidies could be slashed, only saying that officials were working on the mechanisms involved.\nMr Amir Hamzah said softer global oil prices has given Malaysia “space” to perfect the move, and that he is hopeful of trimming the country’s subsidy and social assistance bill to “well below” the RM60 billion range next year.\n“When you do it, you need to plan it out well and when you execute it, so you don't at the end of the day have to reverse decisions,” he said.\n“There will be some clarity during the budget, so I'll let the Prime Minister actually announce that.”\nREINTRODUCING GST\nWhat Mr Anwar has offered clarity on is the timeline for reintroducing GST, saying in a speech on Oct 13 that the policy will only be adjusted in “some years” when wage thresholds in Malaysia rise to a minimum of RM3,000 to RM4,000.\n“I agree, GST is the most transparent and efficient tax system … but my view is, give it some time,” he was reported by Bernama as saying at an Associated Chinese Chambers of Commerce and Industry of Malaysia event. \nWhile the premier acknowledged that GST revenue will help shore up the nation’s coffers, he stressed that the less fortunate should not be burdened by such a tax, echoing previous statements he made on the matter.\n\n\n\n\nThe Finance Ministry has pointed out that Malaysia’s tax revenue, at 12.6 per cent of gross domestic product in 2023, ranks among the lowest in the Association of Southeast Asian Nations (ASEAN).\n“In view of this, Budget 2025 will require measures to broaden the tax base, continuously ensure a progressive tax system, reduce tax leakages and enhance tax compliance,” the ministry said in its pre-budget statement in July.\nEconomists and the business community in Malaysia have repeatedly called for the return of GST, arguing that the broad-based consumption tax represents a more straightforward and sustainable form of revenue generation.\n“The two most obvious things that can be done to gain relief from the constrained fiscal situation are to reduce operational expenditure - and with it expenditure on the salaries of civil servants and pensions - and to reintroduce the GST,” Dr Nambiar said.\n“Smart politics precludes the former and there could be political considerations that work against the latter. That leaves the government with no option but to pick on all manner of taxes on the side to raise revenue.”\nOTHER TAXES\nLocal media outlet Utusan Malaysia reported on Oct 5 that the government is expected to introduce several new taxes in the budget: Unhealthy food tax, carbon pricing tax, artificial intelligence tax, and inheritance tax.\nChatter about the potential inheritance tax has been particularly divisive, with five Sarawak Members of Parliament already saying they will vote against what they feel is a double tax on an Asian tradition.\nThey pointed out that parents or grandparents had already paid income tax to accumulate wealth, such as a house, land or other valuable assets, to pass on to the next generation.\nMr Soh Lian Seng, head of tax at KPMG Malaysia, told CNA that an inheritance tax could provide the government with additional revenue and help address wealth inequality by redistributing inherited wealth.\nBut he cautioned that it could deter investments from high-net-worth individuals, who might relocate their assets or family wealth to countries with more favourable tax regimes.\n“If that happens, this could affect the flow of capital into Malaysia and impact local businesses,” he said, calling for a detailed study that carefully balances short-term political considerations with long-term fiscal sustainability.\n\n\n\n\nMr Soh also expects the budget to give more comprehensive details on the high-value goods tax first introduced in Budget 2024, including finalising the scope of goods covered and establishing an appropriate threshold.\n“It is likely that the government would maintain the previously proposed tax rate of 5 per cent to 10 per cent, as announced in Budget 2024, as this would balance revenue generation without unduly burdening the economy,” he said.\nUltimately, Mr Soh said he does not expect the return of GST in the budget, citing Mr Anwar’s “firm stance” against its reintroduction due to concerns over inflation.\n“However, incorporating some of the features of GST into the Sales and Service Tax (SST) framework could promote a fairer tax system, enhance compliance, and broaden revenue generation,” he said.\nThese include a single tax on the value added at each stage of the goods and services supply chain, and an input tax credit mechanism that allows businesses to claim a credit for the tax they pay on goods and services purchased, he added.\n\n\n\n\n\n      A view of the Pavilion mall in Kuala Lumpur. (Photo: CNA/Fadza Ishak)\n    \n\n\n\n\nThe SST was introduced in 2018 as a replacement for GST, a move aimed at reducing costs of living. Compared to the GST, which was imposed on multiple stages of the supply chain, the SST is a single-stage tax applied either at the manufacturing or consumption stage.\nSERC’s Mr Lee believes GST remains the most effective for revenue generation, suggesting limited room for the SST to be further adjusted after its rate and scope were expanded in March.\nShould the 6 per cent GST be reinstated in 2024, Malaysia is estimated to collect about RM63.5 billion in GST, almost double the RM35.8 billion SST collection projected by the government for 2024, RHB Bank Bhd economist Chin Yee Sian said in a research note in November last year.\nMr Lee also warned further non-action on the GST beyond a few years might run too close to the next general election, which must be held by 2028, and make the tax even more politically untenable.\n“You have to really think about the narrow revenue base,” he said, adding that revenue was crucial to fund increasing expenditure like higher civil servant salaries.\nRAISING INCOME LEVELS\nThe remuneration hike in the civil service, which takes effect from December, was the first in 12 years, and Mr Lee noted that the minimum wage is also due for a review two years after it was set in 2022.\n“Whether they will raise it to RM1,700, RM1,800 or RM2,000, hopefully they will go for a midpoint as costs matter, not just for large SMEs (small- and medium-sized enterprises), but also micro SMEs,” he said.\nDr Nambiar the economist said that a higher minimum wage will raise “pretty stagnant” wages and restrict migrant worker numbers in the country.\n“Higher minimum wages and a higher wage bill for foreign workers could compel companies to look at alternatives,” he said.\n“But in the short run all of this is going to hurt the SMEs, and Anwar might not want that.  If he wants to undertake labour market reform, it is more likely that he'll seek to increase the scope of the progressive wage policy.”\n\n\n\n\nThe government piloted its voluntary progressive wage policy from June to September this year. It is similar to Singapore’s progressive wage model, with the Malaysian government subsidising wages that rise with training and productivity improvements.\nTo qualify for subsidies, companies must pay a minimum wage prescribed for each job in eligible sectors. The lowest paying job under the programme is for entry-level pawnbrokers and moneylenders, starting at RM1,810.\nEmployers will be provided an incentive of up to RM200 per month for 12 months for each eligible entry-level employee. The expectation is that employers will increase eligible employees' salaries by the same quantum or more.\nAs of Aug 5, 1,094 companies had opened accounts under the pilot project. They made about 443 applications, although only 144 of these met the minimum salary requirements, the New Straits Times reported.\nMr Lee said the government could try improving the policy by making subsidies for training and salaries more attractive for employers.\n“There are companies that come forward, but only those that can really meet the criteria will enjoy the co-sharing benefit,” he said.\n“What happens after co-sharing ends? Will they be tied down to having to pay the higher salaries?”\nKPMG's Mr Soh said wage adjustments should be aligned with productivity improvements to ensure a balanced approach to economic growth.\nAn alternative way of addressing rising cost of living and inflation is to revisit individual tax relief policies, he said.\n“For instance, the long-standing personal relief of RM9,000 and the disabled person’s relief of RM6,000, which have remained unchanged for years, could be increased to better reflect current economic conditions,” Mr Soh added.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2475961328"}