RHD IB: Budget 2025 Focus On Subsidy Rationalisation & GST Revival

As the tabling of Budget 2025 inches closer, all eyes are on the long-awaited subsidy rationalisation for RON95 and the potential reintroduction of the goods and services tax (GST).

These reforms, if implemented, might change Malaysia's fiscal landscape and support stability as well as economic growth, according to RHB Investment Bank Bhd (RHB IB). RHB IB's analyst Alexander Chia notes that the unity government led by Prime Minister Datuk Seri Anwar Ibrahim has the strong political footing to make these meaningful changes which will ultimately narrow fiscal deficit, creating room for infrastructure investments, and addressing the national debt.

The rationalisation of RON95 petrol subsidies is one of the most expected changes, with RHB IB projecting it to occur before 2024 end. This however might have a far-reaching effect towards middle-class individuals and businesses that depend on subsidised fuel.

The possible return of GST is equally important, and complete e-invoicing adoption is anticipated to follow suit. With a more equitable tax structure across industries, the reintroduction of the Goods and Services Tax (GST) might give the government the much-needed income stream to address its growing fiscal deficit.

RHB IB’s outlook for Budget 2025, which will be presented on Oct 18, suggests it will emphasise fiscal prudence and compassionate policies for lower-income households. The fiscal deficit target is forecast to fall to 3.5% of the gross domestic product (GDP), down from 4.3% in 2024.

This action may pave the way for a stronger economic climate, particularly with regard to investments in development and infrastructure.

The high-value goods tax (HVGT), which has been postponed, is one of the taxes that might be debated. It is anticipated to target luxury items, however many specifics are yet unknown. For the automobile industry, this might herald change, particularly for middle- to high-income purchasers seeking entry-level luxury cars.

Furthermore, it is unclear if electric vehicles (EVs) would likewise be subject to HVGT, which is concerning because it could undermine efforts to encourage the adoption of EVs.

Expenditure on transport development is another important topic to monitor. According to RHB IB, the percentage allotted to transport in Budget 2025 would be higher than the 21.3% allotted for this year. As the government continues to prioritise enhancing public transportation infrastructure, updates on the Mass Rapid Transit 3 (MRT3) project are also anticipated.

As for Petronas, the country's largest oil and gas company, dividend payments could be lowered in 2025 compared to this year's RM32 billion distribution. This result will probably be impacted by a poorer 2024 performance brought on by lower oil prices.