- 4 months ago
As Budget 2026 approaches, Niaga AWANI explores how Malaysia’s tax policy can drive equity, sustainability, and growth under the 13th Malaysia Plan with Farah Rosley, Malaysia Tax Managing Partner at Ernst & Young (EY) Tax Consultants Sdn Bhd.
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00:00Thank you for tuning in Jagawani and today we're diving into one of the most anticipated
00:13events in Malaysia's economic calendar which is budget 2026 and right now we want to approach
00:20as we approach announcement it's crucial to explore how tax policy will actually shape
00:25Malaysia's development division under the 13th Malaysia Plan or RMK13 so joining us is someone
00:31who knows this space inside out Farah Rosli the Malaysia Tax Managing Partner at Earth & Young
00:36or EY Tax Consultants Sine Burhat Farah thank you for joining me in the studio this morning how are
00:42you I'm good and thank you so much Nabilah for having me again this year amazing amazing so to
00:47discuss on this crucial topic about budget 2026 let's start with the big picture we know the 13th
00:54Malaysia Plan or RMK13 puts equity sustainability and also growth side by side so do you actually
01:01think Malaysia's current tax philosophy is clear about which of this goals it wants to prioritize
01:08please thank you Nabilah I think that's a very good question the 13th Malaysia Plan indeed emphasize
01:16on equity sustainability as well as social inclusion and those are its core goals and within those core goals
01:28it doesn't just focus on economic growth but it also looks at environmental sustainability everybody's
01:35talking about green practices and all that governance and that is very important because having good
01:41governance would mean it will actually ensure a good check and balance as well as social inclusiveness
01:48and we are talking about social there is the thing about jurang in terms of the social equity as well
01:58and when we when we inject tax into it all these three elements sustainability governance as well as social
02:07inclusive inclusion is all interrelated to tax policies and let me break that into those three
02:14components those three categories and if I can start with growth economic growth is very important
02:19and business growth is also very important because without good growth in businesses and we have discussed this
02:26many times taxes is only collected when there's profits and when there's no profit there is no tax to be collected
02:32so it's not just the economic growth overall or generally but it's also about making sure that industries can grow
02:40and can can prosper as well and the emphasis on economic growth competitiveness is also very important
02:49because we are we are now in a global economy not just domestically where we need to be
02:56we need to have healthy competition but it's also important for Malaysia as a region to be able to ensure that our
03:04business and our industries are able to compete in the regional and also in the global arena the second part I would say
03:13would be sustainability and this is a favorite topic where people are always talking about green green practices
03:20and that is also like what I've mentioned earlier the cornerstone for the 13th Malaysia plan
03:28and it calls for a tax system that supports environmental friendly practices so there are green incentives that has been
03:36mentioned and that is actually a sweetener where if businesses are actually doing good green practices
03:44they are given incentives and everybody loves incentives but if they don't then there is also the stake approach
03:51where there are taxes that potentially will be introduced budget 2024 budget 2025 did mention that the introduction of carbon tax
04:02will be made in 2026 so let's wait and see budget 2026 will I my guess if I've got a crystal ball here
04:11will be also will be mentioning maybe mentioning about carbon tax that is impending that will be introduced
04:19and other countries our neighboring countries have already introduced some form of carbon tax for example Singapore
04:25Indonesia and Thailand and the third and the last part is social inclusion
04:29and again tying back to the 13th Malaysia plan where one of the core area is social inclusion
04:36equity is a keyword here when we link it back to tax because when we talk about taxation it must be equitable
04:44it must be fair it's not just about taxing the rich or not taxing the poor but it is also about being equitable
04:52because like what I've mentioned if the tax is going to be imposed on industries and even if they are making
04:59a lot of money they are also contributing to the nation in the form of employment
05:04engaging in technology investment in capital expenditure that will help boost the economy so having social inclusion
05:14it will necessitate the raise of the tax revenue for the country but it is also meaning the tax revenue
05:21that has been collected can be equally distributed back to the economy there's a lot that you mentioned earlier but
05:27there's one concern here because when everything's priority sometimes nothing is yeah so broadening the tax base is often talked about as a way to boost the revenue so but in practice it tends to actually fall on
05:29media's class household like B40 and also M40 and SMEs as well the social small media enterprises so it often means that this vulnerable group are more you know are the ones carrying the load at the end of the day so how can actually this budget
05:442026 avoid repeating that cycle and actually design tax reform that expand revenue without deepening inequality yeah that is very important because again we talk about taxation being equitable being fair
05:59and it's not about taxing for the sake of taxing but it must be a fair system and so that at the end the day when people pay tax they don't grumble they are not unhappy in fact people are happy
06:17but it must be a fair system and so that at the end of the day when people pay tax they don't
06:24grumble they're not unhappy in fact people are happy because you know they're paying taxes for
06:30the benefit of the country and also for the development of the country so that is the
06:35principle and hopefully as a country Malaysia will get there you know where when people talk
06:40about taxes people are not grumbling or making too much noise and you mentioned Nabilah the
06:45concept of broadening the tax base and this is often associated to the need to increase the
06:52government revenue by expanding the pool of taxpayers because otherwise the burden of paying
06:58taxes is lying in a smaller pool of people so meaning in a way a smaller group of taxpayers are
07:06actually subsidizing the rest of the country and you know like what I say you don't want to kill
07:12the goose that lays the golden egg right because these are the taxpayers and capital or people or
07:20investors are mobile if they don't invest here in Malaysia they can invest elsewhere right there are
07:26options so at the same time when we talk about broadening the tax base it's also about making
07:33sure that there is no disproportionate between the and putting more burden on the middle class
07:39income income or putting more burden on the low income people and as we know because of our tax system
07:46the lower income people are not necessarily in the tax bracket because they are not in the jurang
07:52pembayar cukai so they are not and they are not paying taxes so they are in a way not burdened
08:00excluded yeah excluded all together but the main point here the main issue here is the middle class
08:05income because as always they talk about the middle class income trap right and these are the group of
08:11people that are actually being looked into this cycle where they continue to end up not being able to
08:19get out of the middle class income and therefore the coin would being trapped in in that category
08:25so a few principle that we can look at in terms of ensuring that that we continue to expand our tax base
08:33one is having a progressive taxation which means and that we are taxing the high income people
08:40not in a way as like people say punishment again it's a concept of equitable the more income you make
08:49the more tax you pay which is fair right and we also have a taxation regime where if you are at a
08:57higher tax bracket for individuals you're already paying at a higher tax rate 30% if you are above a
09:03million or two million ringgit of chargeable income when you are at a lower income earning or what
09:10they call chargeable income you end up paying at a graduated lower rate 3 5 15% so the progressive
09:18taxation is actually helping us in actually ensuring then that there is social inclusion and there's
09:24fair taxing of the taxpayers the second bit is when we talk about broadening the tax base is also
09:33ensuring then that there is proper tax compliance and people may not like it because that means and that
09:38the authorities the tax authorities will come in and do audits or investigations on the taxpayers but i
09:45think it is necessary it's important to make sure there's check and balance and this will mean then that if
09:52there is any tax not being paid or being missed and hopefully it's not because of non-compliance but it
09:59may be it's because of certain errors and mistakes that can be corrected through compliance and therefore
10:05more taxes can be collected to ensure then that the tax base is being broadened the last part i would like to
10:12mention is also through through ensuring then that SMEs because we talk about broadening the tax base but also
10:20making sure then that there is social inclusion so SMEs is another category they can continue to be supported
10:29through incentives or through a preferential tax rate because currently SMEs are already paying tax not at
10:35the 24% but at the 15 or 17% at lower rate so that is a good support so at the same time i would say
10:43increasing the broadening the tax base but at the same time making sure then that the right tax is being
10:50collected at the right group of people to ensure then that for example the higher income group continue
10:58well the p-tax but they continue to be supported to expand their business and the industries the lower
11:04income or the middle income people do not feel trapped but at the same time there's check and balance
11:09through a compliance mechanism nabila amazing that's a long explanation but very insightful to
11:15listeners and viewers but speaking of incentives globally raising a shift where some countries are cutting
11:22incentives to actually attract investors and that's called tax competition correct me if i'm wrong
11:26while others are aligning on minimum standards called tax cooperation so where should malaysia position
11:32itself under the 13th malaysia plan or mk13 and what are the risks if we get it wrong farah yeah so
11:3813th malaysia plan has if i'm not mistaken 10 focus areas and attracting investment is one of them i mean
11:47digitalization use of ai sustainability as i've mentioned those are some of the focus areas but attracting
11:54investment is also one of the key focus areas under the 13th malaysia plan and if i remember correctly
12:01there were about 611 billion worth of investments that has been earmarked under the 13th malaysia plan
12:10and out of reach about a quarter 200 over billion worth of investments have been allocated or determined to
12:19have a multiply effect to the economy and that means in that in order for malaysia to continue to be competitive
12:27we should look at the age what do we have right and i always like the concept of prospering or enable we're not really
12:35competing although i use the word competitive edge and all that but actually in a globalized economy nowadays
12:43it's not about beating others or competing in that way with the others it's not really a fight
12:51but maybe complementing our neighbors or the region like for example what is our niche what is it that
12:58we want to focus on as a country i may not have the answer now nabilah and i continue to seek for the
13:04answer what is it that we want to do to focus so that we will be a nation that is competitive or is
13:12being favored as an investment destination should we be a hub for business services for example or should
13:19we focus on advanced manufacturing where we bring in all the high-end manufacturing into the country
13:27and also that will also enable better employment for people and therefore reskill and upskill the talent
13:34to make sure that they are relevant and they will remain trained and skilled for future industries and
13:45future businesses so at the end of the day is about attracting FDIs getting the multiplier effect from those
13:55investments into the country which hopefully will spill over to expand and also continue to grow
14:03uh domestic investments because domestic domestic investments is also important nabilah
14:08because we're scared and we have to have a fine line between being uh you know attractive and also being exploited
14:14yes so that we don't kill the local that's true but now um in your opinion farah could budget
14:202026 dare to sunset certain tax breaks and also recycle that money into productivity or innovation
14:27uh even if it means upsetting powerful hobbies i like that question nabilah um firstly firstly um
14:38there are two elements here one is incentives right um some proponent will be saying than that
14:47how much more do we need to incentivize industries uh but actually we need to understand that in incentives
14:54are actually being given uh with a few uh rationale one is to encourage the investment number two is to um
15:04um um support uh certain sectors um certain sectors that we want to continue to um to
15:16to prosper for example uh for the economy like for example if we want uh food safety for example then
15:23maybe we want to incentivize businesses that focuses on uh food safety or if we want to encourage people
15:30to go green uh then uh you know in the last few years the government have given uh import duty exemption
15:36on a green uh vehicle right on evs for example right but again in terms of these incentives it is important to
15:45make sure that those incentives remain relevant uh and that's what you mentioned amila so i said i like
15:51your question because since i think incentives i think is is a need um it's not a buzz but it's a need
15:58because we should continue to review the incentives to make sure that it remains relevant to the country
16:05to the economy because if the incentives are no longer relevant then maybe it's worth to sunset it right
16:11because some incentives were designed back in the 90s for example or 20 years ago which means and that
16:19it's there's a need to review back those incentives and ensure that those incentives remain relevant
16:26to the country like for example one all incentives that has been available for a long time is reinvestment
16:32allowance which allows businesses to continue to be incentivized if they break in if they continue to
16:40reinvest in their business with certain conditions um but those that incentive is mainly targeted for
16:47manufacturing maybe there should be more incentives to encourage services sector for example right so
16:54that's what i'm saying is not and you mentioned will it upset a lobbyist people who lobby for certain
17:00incentives i think at the end of the day as if the policy makers are looking at it for the greater goodness
17:06of the nation and for the growth of the economy then the whatever incentives has been put forward or
17:14been proposed to the government should be considered from the aspect of how that would help generate the
17:22growth that we want as a country or how we want to continue to support certain segments or certain sector
17:29of the the industry to ensure then that those sectors continue to grow and continue to give the
17:35multiply effect uh to the economy well that's the thing about progress we have to make tough calls
17:40definitely definitely okay um let's talk about digital tax where the uh it is regimes that struggling
17:48globally so locally in malaysia does malaysia risk over taxing local digital startups while actually letting global
17:56tech giants slip through the cracks um malaysia has already started taxing uh imported taxable services
18:05um and i think there's a good balance where um where if there are digital imported digital services and
18:13this has been um done many years ago if i'm not mistaken is it was in 2020 that malaysia started to impose
18:21tax on imported digital services um and i don't see any disparity there in terms of um taxing not taxing
18:34the larger or the larger giants uh you know in terms of digital services because they are already being
18:40taxed based on corporate income times and there are not much uh incentive for the large giant in that sense
18:48except for if there are actually in the certain digital services where they are getting um msc status or
18:56malaysia super corridor multimedia super corridor incentive right whilst the smaller startups for example
19:03that provides digital services they are uh given grants for example or release or even uh rebates on some of
19:13the investments that they are making so i think there's a balance then nabilah in terms of making
19:18sure then that the startups in the digital services are not being um second-handed or not being um people
19:26say i nak tiri la in that sense right yeah so they are also being treated equally fairly and also given the
19:32opportunity to continue to grow yeah um what's one radical tax policy that you think we should introduce in budget
19:422026 um that actually would generally future proof the economy because you know it's the uncertainties that
19:48going on right now is uh concerning so is there any radical tax policy that you should you should introduce
19:54in the next budget tabling perhaps something bolder than just tweaking sst or corporate rates yeah radical
20:02tax policies that's very interesting uh and that could also be um uh not not uh not favored by the public
20:10maybe because over the last few years uh there has been uh new introduction introduction of new taxes and um
20:19it may not be a populist move because you know that what i see hopefully there will be a time when people
20:25are happy uh to pay the tax because they know then that the money that has been used for those tax that they
20:31paid is being generated back to help grow the economy uh or being distributed back uh to the society
20:41but if there is any one um uh measure that can be uh introduced i would say isn't that a measure that
20:53actually provides um tax uh that is actually broadening we go back to the earlier point that we spoke about
21:03where it is actually broadening or incentivizing uh certain sectors to actually uh invest more uh and and
21:14also from that investment the measurement is not the tax that they they actually pay but actually what
21:22will be the multiply effect that is being given to the economy for the growth of the economy it can it can be in
21:29a form of see for example um bringing in new technology uh investment into the country uh it could also mean
21:37uh enabling our own malaysian to be re-skilled or up-skilled um measures that uh would give much more than
21:49it the direct yeah the direct result uh one result but giving um what i see multiplier effect that would
21:59boost the economy not just from one angle but from people talent for example from bringing in new
22:06technology from being able to bring new good research and development or innovation to the country
22:13uh and maybe uh and maybe the last uh point uh would continue to encourage uh malaysian companies to be
22:20champions uh in the international arena i know there's a lot of words there um so uh you know maybe certain
22:29activities or certain uh projects that would help boost and provide all these uh compelling um positive
22:38effects to the economy uh to the economy i want to touch on the political side of it because we know
22:44tax reform is actually easy to talk about but it's a bit hard to deliver so what uh or which political or
22:51structural tab was that actually uh do you think malaysia must break if we're serious about aligning
22:56tax policy with the rmk 13 um rmk 13 spoke about uh social inclusion spoke about uh economic growth
23:06uh spoke about uh sustainability uh environmental sustainability um and also social uh i mentioned
23:15again social inclusion right um so if you were looking at tax reform uh or tax policy i think
23:24one of if if i need to choose one i will see then that um i was actually toying between social inclusion
23:31or should it be um uh investments but i would probably settle with investments nabila because
23:40um again i'm saying then that the investments bringing the right investments uh would allow
23:48the country to be able to benefit multi-prong benefit to the country in the sense and that the investment
23:58will allow our people to be employed uh us the country to be able to get higher um per capita income
24:07for example and we've been talking about that for decades already in terms of increasing uh the per capita
24:12income of malaysia um and uh and i would say then that um we need to break away from the situation where
24:23introducing new taxes would mean getting more revenue for the country yes it is correct
24:29but also identity what is the real economic growth or what what is it that provides higher generation
24:43of economy the revenue that has been collected from tax needs to be plowed back to continue to
24:49general economy because otherwise it's just going to be um income goes to spend on something and that
24:57spending if it's a spending that will continue to spur economy growth i think that will be great but if
25:02the spending is just a sunk cost then it doesn't bring in the effect that we want for the country i think
25:09it will be a waste effort as well nabila so i think um that is that is the the challenge that we have
25:16because introducing new taxes is not a popular uh move perhaps no one likes to pay any new taxes but at
25:23the same time how do we strike the balance that the income that has been generated from the taxes is
25:29being flowed channel uh through the right activity or to the right segment or to the right sector of the
25:38the industry that will give us the effect that will help boost uh the economy as a whole yeah and and with
25:46that we get social inclusion uh we get um uh you know we will hopefully we'll be able to also increase
25:53um the uh uh what we call it nabila the social inequality that everybody is talking about but that
26:02brings back to my next question where you mentioned earlier about low carbon policy right but if we
26:07actually serious about it um is it gonna risk the short-term job losses because we tend to put more
26:16aggressively or punish the brown industries so is it going to be racing risking the job opportunities yeah
26:22any uh policy um um any move or any decisions to actually uh put a stop for example we say that
26:33we're gonna put the stock we're serious about it we're gonna we're gonna hit the brown industries for
26:37example i think it cannot be abrupt there must be time given to be fair right again i go back to the
26:44first part inequitable being fair um and it's not because those i would say that not all industries
26:52are which is considered brown is in there uh to pollute for example but it could be a legacy um
27:01situation in the industry um for example if i say we have a manufacturing plant and they have
27:08certain raw materials that is not green uh which means and that when they produce the output the factory
27:16produce using raw material that's not green when they produce produce the output the wastages may be
27:24polluting the environment right i think time should be given to those industries to look at alternative
27:31example right if if like say tomorrow uh policy says and that hey we are going to punish you uh
27:38uh first of october we are today um uh a certain date for example on the first of october and say today
27:46is the 28th of september i think i don't think it's it's fair because businesses need time to look at
27:52alternatives right and maybe if they can actually look at uh better alternatives they would be able to
27:59actually convert the brown industry to to be green all right or or lesser of a brown industry so um in
28:08actually introducing any measures uh or any changes it should not be uh it should not result to a shock
28:17to the the industry and that's when you mentioned it could result to businesses closing down it could
28:23result to supply chain being interrupted and it could also result to reputation uh to the country because
28:31you know we are not able to consistently uh produce because of um the policy that's creating shock to the
28:41industry and they are not able to make the changes that is needed because there's no sufficient time
28:47given to them right so if there is sufficient time given but of course it's not going to be forever
28:53sufficient time maybe three months six months one year um they the the businesses will be able to actually make the
29:00the necessary changes to ensure then that less pollutant to the um environment uh and therefore
29:08safe jobs as well because they then if they are able to continue to sustain um they don't need to
29:14actually lay off the workers and as we all know these workers also pay taxes right so we don't want
29:20again any uh social negative impact to the social to to the society as well by introducing measures that is
29:29too abrupt all right so throughout this whole conversation we can conclude that or it's clear that
29:35budget 2026 is not just about numbers it's actually uh important where we should prioritize uh social
29:42equity when it comes to the budget tabling on the 10th of october later so far thank you so much for
29:48sharing your insights and to our viewers stay tuned and don't go anywhere we'll be on a short break and we'll be right
29:54right back
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