KUALA LUMPUR (Oct 7): Putrajaya’s plan to introduce a carbon tax is a good move in the right direction for the nation in achieving carbon neutrality by 2050.

“Although no specific implementation date has been announced, the government is evaluating the carbon pricing mechanism. Already introduced in various developed countries, the carbon tax will serve as a new source of government revenue and is certainly a step in the right direction to assist our nation in achieving carbon neutrality by 2050,” KPMG Malaysia head of tax Soh Lian Seng said in a statement on Friday (Oct 7).

With the government’s intention to introduce a carbon tax to drive the environment, social and governance (ESG) agenda, Soh said sustainability was certainly a key focus in the Budget 2023 proposals.

“The extension of the Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE) by another two years to Dec 31, 2025, will also continue to incentivize and encourage businesses to accelerate the use of ESG-focused technology and embark on green projects,” Soh added.

PwC Malaysia tax leader Jagdev Singh hopes the introduction of the carbon tax can be expedited.

"Not only will this hasten the need for businesses to reduce emissions, but can be a source of revenue which can then help subsidise other areas of the overall green agenda. Singapore, the pioneer in introducing carbon taxes in the region, expects to collect SG$1 billion across five years," said Jagdev in a separate statement.

Jagdev thinks Budget 2023 is one of the broadest and most overarching budgets he has seen in terms of areas covered, with allocations and initiatives that address both short-term needs and the nation's long-term targets.

“Nevertheless, I would consider Budget 2023 as bold, despite the clear absence of large-scale reforms which many have speculated on in the past year, including the re-introduction of GST, carbon taxes or a comprehensive subsidy reform,” he said.

On how the government would fund the budget, Jagdev said despite the proposed reduction in personal tax, the government has projected an increase in tax collections across the various taxes such as corporate income tax, personal income tax and sales & services tax.

“This could be a reflection of the government’s confidence that the economy will continue to recover to pre-pandemic levels, resulting in higher tax collections contributed by individuals returning to the workforce at higher wage levels, profits from recovering businesses and increased audit activities by the tax authorities,” he said.

Ernst & Young Consultants Sdn Bhd’s Malaysia tax leader Farah Rosley, meanwhile, described the latest budget as comprehensive, disciplined and forward-thinking, with a focus on reforms to build resilience and weather uncertainties amid an increasingly challenging global economic and geopolitical outlook.

The budget also lays the foundation for future growth and competitiveness in strategic areas such as sustainability and digitalisation, she added.

Farah also lauded social protection and increasing disposable income as being key priorities under Budget 2023, which proposed personal income tax cuts for the M40, additional cash handouts and loans, and income tax exemptions for women returning to the workforce after a career break.

“This underscores the government’s commitment to providing a robust safety net for Malaysia’s vulnerable socio-economic groups,” she said.  

KPMG's Soh likewise noted that Budget 2023 takes into account the rising cost of living of Malaysians, particularly the middle 40% (M40) income groups, and tries to help the worst-affected economic sectors such as tourism and travel.

“Most significantly, a 2% reduction in personal income tax rate for individuals with taxable income ranging from RM50,000 to RM100,000; the reinvestment allowance and income tax exemption for the hotel and tourism industries — these reliefs are well received,” he highlighted.

He also praised the government's continuing emphasis on strengthening the recovery momentum for small and medium enterprises (SMEs) with the provision of a 2% tax cut for the first RM100,000 income, various tax allowances, financing assistance and grants for automation and digitalisation spending.

The announcement on implementing the qualified domestic minimum top-up tax of 15%, starting in 2024, will combat revenue leakages and profit-shifting activities and allow Malaysia the first right to charge top-up taxes on revenue from entities located in Malaysia that are paying low taxes, he said.

Besides addressing the problem of “lack of money” for enterprises, YYC group chief executive officer Datin Yap Shin Siang said the latest budget is also trying to help address the problem of lack of workers by encouraging women to re-enter the workforce, and providing RM235 million financing for women entrepreneurs.

“At the same time, in order to encourage employers to hire people with disabilities (OKU), women returning to the workplace, indigenous peoples, and former prisoners, the government will also provide incentives of RM600 to RM750 per month to employers for a period of 3 months,” Yap noted.

Get our comprehensive coverage of Budget 2023 here.