This article first appeared in The Edge Malaysia Weekly on November 1, 2021 - November 7, 2021

THE RM332.1 billion Budget 2022 — the largest to date — which was tabled by Finance Minister Tengku Datuk Seri Zafrul Aziz last Friday is seen as a feel-good budget, one that has goodies for almost everyone in the Malaysian family, in line with the government’s theme of “Keluarga Malaysia, Makmur Sejahtera”.

However, the elements presented in the budget are also reflective of an imminent election that could be held as early as August 2022.

“It is a feel-good budget that gives you a feeling that maybe an election is around the corner. But at the same time, we are in a pandemic and there is a need to move into full recovery from that [and therefore such measures are needed],” says Tricor Services (Malaysia) Sdn Bhd non-executive chairman Dr Veerinderjeet Singh.

The budget aims to provide supportive measures for every member of the Malaysian family, from the vulnerable groups such as the lower-income households to the business sector.

“This budget, like past budgets, is seen as people-friendly. It is expansionary in the sense of the increased government spending and also the supportive measures to help businesses expand. There is also no additional tax burden on the people with the exception of the cukai makmur, which is a one-off special windfall tax on companies that generate extraordinary taxable profits,” says Sunway University economics professor Dr Yeah Kim Leng.

An element of surprise in Budget 2022 is the cukai makmur. The tax is a one-off special tax on companies that generate extraordinary taxable profits, at a rate of 24% on the first RM100 million and 33% on the remaining chargeable income for the Year of Assessment 2022.

It would seem that the tax is ironic for a budget that speaks of regaining prosperity for the people, given that the rate of 33% on the remaining chargeable income would seem punitive to companies reeling from the after-effects of the pandemic.

“This is reminiscent of an excess profit tax that we had in the country many years ago, and that was at 5% of the excess. I guess it could have been structured better as 33% could seem punitive, because now it looks like an increase in the corporate tax rate. However, this is a one-off and companies should see this as a contribution,” says Veerinderjeet.

He also welcomed other measures in the budget such as the introduction of the Fiscal Responsibility Act, which aims to improve governance, accountability and transparency in the country’s fiscal management, and the publication of the Tax Expenditure Statement.

“The publication of the Tax Expenditure Statement is in line with various developed countries, as such statements will tell you the exact costs of all the tax incentives and special deductions that the government is announcing, and this is good from the point of view of transparency,” says Veerinderjeet.

In his speech, Zafrul said the government would not impose the Real Property Gains Tax (RPGT) on the disposal of real property from the sixth year onwards for individuals. Farah Rosley, president of the Chartered Tax Institute of Malaysia (CTIM), says this is a welcome move.

“To further ease the burden of the rakyat, the RPGT rate will be reduced to 0% from 5% currently on the chargeable gain from disposal of real property or real property company shares by individual citizens and permanent residents from the sixth year onwards. This will take effect from Jan 1, 2022. Real property owners can now plan the disposal of their property from the sixth year onwards and save on the 5% RPGT. This will be welcomed with much relief,” she adds.

There will also be a special voluntary disclosure programme to be introduced by the Royal Malaysian Customs Department, as alluded to before in the pre-budget statement.

Income tax will also be levied on residents in Malaysia for income derived from foreign sources and received in Malaysia from Jan 1, 2022.

SME Association of Malaysia president Datuk Michael Kang says he welcomes the measures for SMEs in Budget 2022, which include a deferment of income tax instalment payments for Malaysian SMEs for six months until June 30, 2022.

“We feel that this is really a budget for SMEs, especially those that have been affected by Covid-19. We are grateful that there is no tax increase for SMEs. In our consultations previously, we said SMEs really needed help with cash flow, and we feel that the government has listened to our plight,” he tells The Edge.

A total financing package of RM40 billion will be made available under the Semarak Niaga Keluarga Malaysia Programme. This financing scheme includes direct loans, financing guarantees and equity-based schemes, which aim to benefit businesses of all sizes, from micro enterprises all the way to public-listed companies.

To assist companies facing gearing or leverage problems, funding worth RM2.1 billion will be allocated to support equity and quasi-equity investment schemes. The initiative will be led by SME Bank in collaboration with Teraju and Bank Simpanan Nasional, with a fund worth RM600 million open to all and especially targeted at businesses, including bumiputera entrepreneurs.

Similarly, Bank Pembangunan Malaysia Bhd will allocate RM500 million for its Rehabilitation and Support through Equity scheme (Reset) in addition to Bank Negara Malaysia’s Business Recapitalisation Fund worth RM1 billion.

In total, RM14.2 billion worth of funds will be available in 2022 for SMEs, through SME Bank, Perbadanan Usahawan Nasional Bhd, Bank Pembangunan, AgroBank, MIDF and Mara as well as through Bank Negara’s Funds for SMEs. Under the central bank’s Funds for SMEs, the Targeted Relief and Recovery Facility (TRRF) has been upsized by RM2 billion, bringing the total available funds under various SME facilities administered by Bank Negara to RM11.2 billion.

In addition, an initiative to assist companies listed on Bursa Malaysia will also be introduced. This initiative aims to help viable companies that have been affected by the Covid-19 pandemic get an injection of additional funds through a government-owned special purpose vehicle in the form of equity instruments or other related instruments. For this purpose, Khazanah Nasional Bhd will be given the mandate to help the government in providing the infrastructure to manage the fund size of at least RM3 billion.

N Ravindran, a partner at specialist advisory firm Sage 3, says the measures in the budget to assist SMEs facing leverage problems, as well as those to assist viable listed companies that have been affected by Covid-19, hit the mark as they are bold and timely. That is because meaningful business and turnaround plans can now be produced with the economy reopening fully.

In terms of listed companies, he says having Khazanah intervene is an excellent idea as it creates useful cooperation between entrepreneurs and the state. He adds that it is challenging for listed companies that have been adversely affected by Covid-19 to raise new capital as private capital is unwilling to take risks related to turnaround situations or where the business has faced a downturn when the promoter or majority shareholder does not have the capacity to inject funds.

“The state fills the gap as it has the capacity to take on this type of risk effectively, given that it can take a long-term view and mitigate the risks with portfolio diversification. For SMEs, it is very positive as commercial banks have profit and regulatory capital considerations and thus, development financial institutions can play a key part in assisting companies affected by Covid-19 through their counter-cyclical role,” says Ravindran.

“The key idea is to enable more companies to pivot to survive and grow. As a country, we do not want large-scale liquidation of companies or the creation of zombie companies adversely affecting the economy.

“Malaysia is uniquely placed to deliver effective restructuring in this respect as through the central bank, it has critical agencies such as the Corporate Debt Restructuring Committee and AKPK (Agensi Kaunseling dan Pengurusan Kredit), which complement the bold move by the government.”

CTIM’s Farah says on the whole, Budget 2022 is a budget “from the people, by the people and for the people”, as mentioned by Prime Minister Datuk Seri Ismail Sabri Yaakob.

“This budget has covered a wide spectrum in terms of tax deductions and incentives for businesses, employment, women’s development, cost of living, rural development and others that will help sustain and spur economic activities, rebuild economic resilience and catalyse the reform agenda against the backdrop of a prolonged Covid-19 pandemic,” she adds.

Yeah says the supportive nature of the budget creates tailwinds for the ruling party to call for a general election soon. “With the recovery in sight and with stimulus in place to help create some form of a feel-good factor, that will be favourable for an early election to be held.

“But of course, we do note the headwinds that are gathering in terms of a slowdown in global growth, supply chain disruptions, rising inflation and higher commodity prices. Hopefully, the adverse impact from these will be short term. If not, we will face a stronger inflation threat for 2022 and beyond.”

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