Budget 2021, themed ‘Teguh Kita, Menang Bersama’ was tabled in Parliament on 6 November 2020. We share key highlights from the Budget, insights from our tax experts, related publications and more.
The COVID-19 global pandemic has changed the way we live and work. Around the world, governments, businesses, employees and the wider community have had to adapt and learn to operate in a climate of uncertainty - at least for the foreseeable future.
As such, Budget 2021 was a highly anticipated event. Not least because it is a budget under a new government and during a global health crisis. It’s also a continuation from economic stimulus packages that have been announced since early 2020, which has amounted to over RM300bil thus far.
With a total of RM322.5bil allocated, Budget 2021 is the biggest ever in the country’s history, in a bid to boost economic resilience, safeguard the wellbeing of the Rakyat, and reinforce healthcare in the nation’s path to recovery.
Inclusivity featured prominently in what the Finance Minister says is a “priority to protect the people above all else”. There was something for everyone - from businesses of all sizes, to education providers, gig workers, vulnerable groups and indigenous people. And short of a windfall tax, corporations that have experienced a boon as a result of the pandemic have also been announced to commit RM400mil towards COVID-19, including the cost of a vaccine.
Many expected that wage subsidies and financial aid will continue, alongside measures to stimulate consumer spending, accelerate digitalisation, encourage reskilling and upskilling of the workforce, growing SME competitiveness, reinforce public healthcare services, and revitalise both foreign and domestic investments in the country. The Budget clearly addresses all of these areas.
The key test now is execution. Stimulus programmes and projects need to be quickly deployed, whilst ensuring that impact continues to be assessed. As we move from managing the immediate impacts of the health and economic crisis, to recovery, stabilisation and normalisation, it will be critical to ensure that future budget initiatives adapt to focus on enduring and productivity-enhancing programmes, and those which boost complementary investment and job creation by the private sector.
Growth to rebound in 2021 GDP growth is forecast to recover to 6.5% - 7.5% in 2021 from a contraction of 4.5% in 2020. |
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Top growth sectors in 2021
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Surge in public investment Public investment is projected to expand by 16.9% in 2021 |
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Jump in private consumption Private consumption is forecast to grow by 7.1% in 2021 |
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Gradual recovery of labour market Unemployment rate is expected to drop to 3.5% in 2021 from 4.2% in 2020 |
An expansionary Budget 2021 Largest expenditure in history amounting to RM322.5 billion, with fiscal deficit projected at 5.4% of GDP in 2021. |
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Development expenditure 38% increase in development expenditure in 2021 to RM69 billion (e.g. for transport, rural infrastructure and regional development) |
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Prioritising digitalisation Around RM18 billion allocated for digital initiatives (e.g. for digital infrastructure, adoption and upskilling) |
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Supporting jobs and incomes RM7.9 billion for job retainment and employment schemes and RM13.3 billion to alleviate financial hardships through EPF account |
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Relocation incentives from PENJANA expanded Concessionary tax rate ranging from 0% to 10% previously restricted to manufacturing operations relocating to Malaysia granted to specific services and manufacturing related services for applications to MIDA up to 31 December 2022. |
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Introduction of Global Trading Centre (“GTC”) incentive and extension of Principal Hub (“PH) incentive Qualifying trading activities previously subject to stricter PH conditions can be incentivised under GTC for applications up to 31 December 2022 with a 10% concessionary tax rate. PH extended until 31 December 2022 with certain relaxation particularly in the second term of the 5+5 year incentive. |
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Tax incentives for pharmaceutical manufacturing companies In addition to concessionary tax rate from 0% to 10%, strategic investments by pharmaceutical manufacturing companies (particularly vaccines) may enjoy grants and import duty/sales tax exemption for applications up to 31 December 2022. |
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Various personal tax reliefs and income tax rate reduction Increased and expanded personal tax relief mostly in medical care, Private Retirement Scheme and education sectors. Income tax rate was reduced from 14% to 13% in the RM50,001 to RM70,000 income bracket. |
