No Match Found
Budget 2021 is the largest, and may well be the toughest budget to craft. The pandemic has changed the economic landscape considerably, having a significant impact on businesses as well as the Rakyat. The Budget is certainly skewed to deal with the immediate need to alleviate the pain faced by the B40 and M40 groups, and at the same time, ensure businesses can be sustained through these tough times.
Whilst there is significant pressure on Government revenues and this is expected to continue, the bold move to announce an expansionary Budget is appropriate in ensuring the wellbeing of the Rakyat is emphasised and sufficient allocations are made to the key sectors of the economy which will help kickstart economic recovery.
Ensuring the wellbeing of the B40
As fiscal measures are not able to address the needs of the B40 and the lower tier of the M40 groups, the Government continues to use direct cash handouts as this puts money directly into the pockets of the target groups.
Personal tax measures
There is a 1% reduction in tax rate for the RM50,001 to RM70,000 tax bracket. This will benefit the M40 and T20 groups, which will see their tax bill reduced by up to RM200 next year. At the same time, the personal tax reliefs have been tweaked to drive behaviour - encouraging vaccination in society, expanding lifestyle relief on sports-related expenditure and nudging individuals to go for medical check up.
Protecting and creating jobs
Budget 2021 takes a longer term approach by focusing investments into generating and retaining jobs. These measures include hiring incentives, with employers being given an additional incentive equivalent to 20% of the employee’s monthly income with a total incentive of 60%, and special incentives for employers who seek to replace foreign workers with a local workforce. This is further supplemented by a short term employment programme, to provide job opportunities without necessarily burdening the Government with additional headcount.
Another good move is the extension of the wage subsidy programme through a more targeted approach to address the needs of the tourism industry, including the retail sector.
Positioning the workforce for the future
Despite the challenging environment, the people remain the foundation of the nation, and a major catalyst for spurring economic growth. Budget 2021 recognises the necessity of continuing reskilling and upskilling programmes, particularly with the view of redeploying individuals into new roles, and positioning Malaysia as a differentiated location with the right talent.
Budget 2021 takes a scalpel-like approach in targeting specific areas that the Government would like to promote investments in, such as:
extension of the Principal Hub tax incentive until 31 December 2022 with relaxation of conditions;
carving out of a Global Trading Centre as a separate tax incentive with a concessionary tax rate of 10% for 5 years with the ability to renew for another 5 years; and
extending the tax incentive to encourage manufacturing businesses to relocate to Malaysia for another year till 31 December 2022.
I applaud the Government’s announcement to expand the tax incentive for relocation to Malaysia, which grants a concessionary tax rate of between 0% to 10% for 10 years, to selected businesses in the service sector that has a significant multiplier effect to the Malaysian economy. The targeted sectors relate to IR 4.0 and digitalisation. Manufacturing remains the core of the overall business ecosystem and hence it was timely for the Government to introduce a game-changing incentive package. The expansion of this tax incentive to the services sector sends the right signal to the market that the services sector is also a key driver to Malaysia’s recovery as we strive to have an overall ecosystem that investors desire.
The Government’s announcement to extend tax incentives that are ending in 2020 for another 2 years until 2022, while they undertake a holistic review of the tax incentive framework in Malaysia, is also much welcomed, as these include tax incentives granted to the various Economic Corridors in Malaysia. This will ensure that investors will not be disadvantaged by any gap in the tax incentive period.
There were various measures for SMEs that were sprinkled throughout the Budget speech, but those that stand out for me are:
JanaNiaga or the National Supply Chain Finance Platform to help alleviate the cash flow of SMEs, especially in terms of their engagement with the Government and Government-Linked Companies (GLCs). This is a win-win for the SMEs, Government/GLCs, as well as the banks;
the RM2.5 billion allocation to Class G1 to G4 contractors for small and medium projects across the country. In addition to having a multiplier effect to the economy at the local level, this will also help to sustain the business of these contractors, who are mainly SMEs; and
although not specifically targeted at SMEs, the extension of the Wage Subsidy Programme for a further 3 months, targeted at the tourism and retail sectors, would greatly benefit SMEs, as they form the backbone of these sectors.
Before the Budget 2021 announcement, there had been clamour from businesses for measures to alleviate the impact of the COVID-19 pandemic, such as reduction in corporate tax rates, review of the 7-year time limit to carry forward tax losses and re-introduction of tax loss carryback. However, in light of the fact that this is the largest budget ever announced by the Government and pressure on tax collection from a slower economy, the Government appears to have resisted the urge to tweak the tax legislation, but instead, challenge businesses to remain steadfast and pull through together. Perhaps it is best not to change too many things during such times of great uncertainty.
PwC Malaysia Tax Leader