Budget 2020 announced by the Minister of Finance Yang Berhormat Lim Guan Eng is very focused on driving growth amidst a more uncertain global environment to ensure that the broader government agenda of shared prosperity can be achieved. The thrust of aggressively competing for Foreign Direct Investments, encouraging Domestic Investments and promoting the digital sector is key in increasing the size of the economic pie.
Kickstarting the digital and high-technology economy
This is the first Budget to provide clarity on Malaysia's approach in navigating the digital and high-technology economy. Various initiatives were announced in relation to this sector but the ones that I’m most interested in are:
These measures, coupled with a more customer-centric approach in attracting and facilitating these investments through InvestKL, and MIDA’s role as an account manager, as well as the expeditious process of approval will hopefully differentiate us from our neighbours.
Various incentives and grants were also announced to encourage businesses in both the manufacturing and services sectors to pursue digitalisation and automation. This encourages the adoption of new technology, as well as the reinvestment and upskilling of the workforce that will increase productivity and efficiency.
The social elements are not left out, with tax deductions provided for Digital Social Responsibility initiatives.
Championing small and medium enterprises (SMEs)
The contribution of the SME sector to the Malaysian economy remains key, and it is heartening to note that the Government continues their support in the form of loans and guarantees, subsidised financing, and assistance with infrastructure development. Several measures were also introduced to encourage our SMEs to increase their competitiveness in the global market. This included enhancements to Skim Jaminan Pinjaman Perniagaan to increase the guarantee provided from 70% to 80%, and reducing the guarantee fee to 0.75%, in addition to the additional funds allocated to SMEs for exports, trade financing, Halal product development and interest subsidies.
Job creation via the Malaysians@Work initiative
I believe the introduction of the Malaysians@Work initiative is progressive. It involves a four-pronged approach to addressing issues surrounding graduate unemployment level, women in the workforce, dependency on foreign workers and promoting TVET - all of which are pain points that need to be addressed. Providing a direct cash benefit to both employees and employers is much more meaningful as the benefit is immediate.
What does it mean for the B40?
The increase in minimum wage from RM1,100 to RM1,200 per month effective 2020 in major cities may not seem big but it is a significant direction in the Government’s initiatives in improving the living standards of the B40 group. The expansion of MySalam to cover more critical illnesses and persons up to 65 years old, and the lowering of the qualifying age for the PEKA B40 scheme to those aged 40 are good measures to bring more of the B40 group into the social security net.
The announcement of details on the targeted fuel subsidy scheme is also much welcomed, crystalising the government’s promise to the Rakyat. However, there are some reservations about the implementation of the two different mechanisms for delivery of the subsidy, one directly into the bank account of the beneficiaries and the other at point-of-sale, which may result in inefficiencies. Whilst this is necessary given the limited data on the M40 beneficiaries, over time the two mechanisms need to be converged.
What does it mean for the M40?
A host of measures has been introduced, benefiting the M40 group. This includes the expansion of MySalam to those with gross annual income up to RM100,000, the introduction of the targeted fuel subsidy via Kad95, the increase in individual tax relief to RM2,000 for fees paid to nurseries and kindergartens, the digital stimulus of RM30 for e-wallet adoption, and the minimum 18% reduction in toll charges.
Measures for the property sector
The rebasing of the RPGT base to 1 January 2013 is a much welcomed measure, in light of the introduction of the 5% RPGT rate in Budget 2019. However, this is less straightforward compared to exempting all sales for properties held beyond 10 years.
The lowering of the threshold for foreign ownership of property from RM1 million to RM600,000 will also help to address the property overhang issue. Although this measure may be appropriate in the short term, specific guidelines are important in ensuring their long-term sustainability and viability. Questions abound as to whether the relaxation of foreign ownership should be limited to the secondary market or extended to the primary market, if there is a need for a minimum holding period, as well as a limit on whom they can sell to.
PwC Malaysia Tax Leader
Manager, PwC Malaysia
Tel: +60 (3) 2173 0226