This article first appeared in The Edge Malaysia Weekly on October 10, 2022 - October 16, 2022

CONTRARY to the one-off prosperity tax announced in the last budget that shocked local corporates, Budget 2023 is perceived to be generally neutral, although it benefits the construction sector.

The heads of research The Edge spoke to generally expect a muted impact from this “election budget”.

“The absence of the prosperity tax is very good for corporate earnings. This year a lot of companies’ earnings have been affected by this tax. While things look better, valuations are affected by other factors coming from the US Federal Reserve,” MIDF Amanah Investment Bank Bhd research head Imran Yassin Yusof tells The Edge.

Bursa Malaysia chairman Tan Sri Abdul Wahid Omar concurs, noting the absence of the prosperity tax in Budget 2023. Its effect would have been to potentially shave off the FBM KLCI’s 2023 earnings per share (EPS) forecast by 5% to 6%.

“Without such a tax being imposed, analysts have a consensus forecast EPS growth rate of 11.5% for 2023 compared to -1.1% for 2022. This augurs well for the capital market,” he says in a statement.

Glove makers were among the casualties of Budget 2022’s prosperity tax, with Hartalega Holdings Bhd posting a net loss for the fourth quarter ended March 31, 2022 — its first ever quarterly loss.

Hong Leong Investment Bank head of research Jeremy Goh says, “No major wows and shocks such as the prosperity tax like last year. The impact is muted from the market perspective.”

With the extension of tax relief for costs incurred in initial public offering (IPO) exercises for the ACE and LEAP Markets of Bursa Malaysia until the year of assessment 2025, Inter-Pacific Securities head of research Victor Wan is of the view that the move could encourage more new listings.

At the same time, there will be tax cuts arising from listing costs for tech-related companies on the Main Market. Nonetheless, Wan says there isn’t much for Corporate Malaysia in Budget 2023.

Imran is surprised by the huge rise in the development budget to RM95 billion from the previous RM75.6 billion, which could provide impetus for the construction sector and the overall economy. The building and upgrading of road, rail as well as rural and urban infrastructure will help boost the economy.

“There will be a high multiplier effect on the economy, especially for 2023,” he observes, adding that another key beneficiary of Budget 2023 is the electrical and electronics (E&E) sector, in view of the various incentives such as the relocation incentive to attract affected E&E investors.

“Given the ongoing tensions between the US and China, the Malaysian government is trying to lure companies and multinational corporations from China to relocate to Malaysia. Although Indonesia and Vietnam have low labour costs, our E&E sector has very good infrastructure in place.”

Imran says the granting of a special status to the Pengerang Integrated Petroleum Complex for chemical and petrochemical investment incentives is another plus point for the oil and gas (O&G) industry. Petroliam Nasional Bhd (Petronas) has invested US$27 billion (RM125.2 billion) to develop the petrochemical facility, which is the largest in the region.

Imran says that while the cut in personal income tax will benefit the consumer sector on the back of more disposable income, the market may not see an immediate effect. “But you can expect consumer companies to maintain their sales amid potential headwinds next year,” he adds.

Nearly one million resident taxpayers in the RM50,000 to RM100,000 bracket will enjoy a reduction of two percentage points in their tax rate, which could see them save up to RM1,000.

Meanwhile, Goh points out that the government’s efforts to crack down on smuggling activities involving cigarettes and alcohol augur well for brewers and tobacco players. According to Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz, a multi-agency task force will enforce tight control at entry points, including private jetties, to crack down on such activities.

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