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Monday, April 15, 2024

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Revised Malaysian budget scraps previously proposed carbon tax

Malaysian Prime Minister and Finance Minister Anwar Ibrahim has unveiled a revised 2023 budget on the 24th February this year following the change of government, introducing new sustainability measures while scrapping the previously proposed carbon tax.

The budget, which was upsized to RM388.1 billion (US$86.53 billion) from RM372.3 billion (US$83.01 billion) in the budget initially tabled on the 7th October 2022, has a considerable Islamic finance push and a higher development spend. But it did do away with a carbon neutrality measure proposed in the initial budget.

Sustainability spotlight

The carbon tax announced in the initial budget has been removed from the table, with no mention of the initiative in the revised budget.

“The government intends to introduce a carbon tax and will study the feasibility of a carbon pricing mechanism. To support the implementation of this mechanism, the government will provide RM10 million (US$2.23 million) in matching grants to support the preparation of carbon assessments by SMEs and for eligible related products,” the previous finance minister, Tengku Zafrul Aziz, announced at the tabling of the initial budget.

While the introduction of a carbon tax is not on the agenda this year, the tax-heavy revised budget has maintained the government’s commitment to study and enhance the Green Investment Tax Allowance and Green Income Tax Exemption. Tax deduction for the issuance cost of SRI-linked Sukuk for a five-year period has also been retained.

The revised budget largely maintains the sustainable finance allocations made in the previous budget with minor adjustments. Notably, the new budget allocates RM1 billion (US$222.96 million) to Shariah compliant Bank Pembangunan Malaysia (BPM)’s Sustainable Development Financing Scheme, downsizing the allocation by RM500 million (US$111.48 million) from the initial budget’s allocation.

BPM has also received a RM6 billion (US$1.34 billion) allocation for strategic financing to promote sustainable agenda and automation. Bank Simpanan Nasional has also received a total of RM1.15 billion (US$256.41 million) in allocations for three microcredit schemes.

Other notable sustainability measures include Bank Negara Malaysia providing up to RM2 billion (US$445.93 million) to support green technology start-ups and assist SMEs to implement low-carbon practices while Khazanah Nasional will provide RM150 million (US$33.44 million) to environmentally friendly projects including supporting the carbon market and reforestation.

Islamic finance push

Unlike the previous budget proposal, Islamic finance has been given a larger spotlight in the revised budget. One of the main Islamic social finance initiatives announced in the budget is the establishment of Wakaf MADANI.

“The government has received a private commitment to establish Wakaf MADANI comprising assets worth more than RM1 billion. These assets, which comprise land, mosque, building, health and education facilities, will be optimized for the benefit of the poor, low-income earners and other vulnerable groups,” Anwar said during his budget announcement.

According to Anwar, a staggering 88% of registered Waqf land in Malaysia has not been developed, noting the pressing need to transform the assets into productive Waqf. The MADANI framework, which the namesake revised budget is based on, will use Waqf as one of the redistributive mechanisms that contribute to ‘universal prosperity’.

The revised budget also announced that the issuance of dual class shares will be allowed by the Malaysian Securities Commission (SC) to facilitate the creation of more secondary markets for private market instruments. The Shariah Advisory Council of the SC passed a resolution on the 17th October 2022 for Shariah compliant preference shares.

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