PwC statement on Budget 2016 by our Tax Leader, Jadgev Singh

KUALA LUMPUR, 23 October 2015 – Budget 2016, the first budget under the 11th Malaysia Plan, marks the beginning of the final lap of the nation’s transformation into a high-income advanced economy.

Amidst the challenging economic environment due to the reduction in oil prices and Ringgit depreciation, this budget focuses on striking a balance between the Capital Economy and People Economy with the theme “Prospering the Rakyat”.

Budget 2016 proposes a number of measures to deal with the issue of rising cost of living. BR1M is set to continue in 2016 at an increased sum and this still remains as the most efficient way of putting money in the pockets of the low income group where fiscal measures will not be effective. For the middle income group, increase in the various personal tax reliefs will help reduce their tax bill. However, the high income group will have to fork out a greater proportion of their income as taxes.

As expected, the outcome from GST is positive in terms of contribution to national revenue. Widening of the zero rating scope on several basic necessities such as controlled medicines, infant milk, etc. and relief on reimportation of goods are some of the tweaks that were expected to deal with issues raised by the industry. However, the anticipated resolution of GST issues relating to independent consultants in the healthcare industry remains outstanding and this is one way to keep the increasing healthcare costs in check.

The Government continues to emphasise on SMEs’ key role in contributing 41% of GDP by 2020 with an additional RM1billion in government subsidised financing schemes and various other programmes including flexibilities on tax incentive conditions. However, a much hoped icing on the cake in terms of even lower tax rates compared to the 19% was visibly missing.

The special reinvestment allowance to encourage reinvestments in the short term will help boost the sluggish sentiments among manufacturing companies in terms of expanding or diversifying their operations. However, given the fierce competition for investments, a more holistic review of incentives is timely as a game changer to take us to the next level.

Education and health remains an important aspect of the nation with budget allocations to build new schools and hospitals together with additional measures to strengthen Malaysia’s quality of education and healthcare.

With the Sarawak state election looming ahead, Sabah and Sarawak are in the spotlight with various development initiatives being implemented, ranging from the toll-free Pan-Borneo highway to providing interest-free loans for building longhouses and subsidies for farmers.

To sum it up, Budget 2016 deals with the various short term issues faced by the nation. It is reassuring to see that we have kept expenditure in check and remain on track to gradually reduce the budget deficit.

ENDS