21 October 2016

Malaysia's 2017 Budget supports entrepreneurship

Malaysia Prime Minister YAB Dato' Sri Mohd Najib Tun Haji Abdul Razak's Budget 2017 announcement was a boost for entrepreneurship. To improve opportunities, especially for the B40 group - the bottom 40% of households in Malaysia, which have a monthly income RM3,900 and below PM Najib announced:

Expansion of the Mobileprenuer Programme by GIATMARA with a total allocation of RM30 million, targeting 3,000 participants using motorcycles;

An Agropreneur programme to produce 3,000 young entrepreneurs with an allocation of RM100 million. These entrepreneurs will be involved in the production of high-value agricultural products; and

Revitalising eUsahawan and eRezeki programmes under the Malaysia Digital Economy Corporation (MDEC), comprising 300,000 participants with an allocation of RM100 million.

PM Najib noted that digital connectivity contributes nearly 16% to Malaysia's GDP. MDEC will also disburse RM162 million to implement programmes such as an e-commerce ecosystem, a Digital Maker Movement as well as introduce a Malaysia Digital Hub.

"The Government will also introduce the first Digital Free Zone in the world. It will merge physical and virtual zones, with additional online and digital services to facilitate international e-commerce and invigorate Internet-based innovation," he said.

Malaysia is also committed to a faster network. Effective January 2017, fixed line broadband service providers will offer services at a higher speed for the same price. "For example, a subscriber of (a) 5 megabytes per second package at RM149 will enjoy a package with twice the speed, which is 10 megabytes per second," he added. "Within the next two years, for this package, the speed will be doubled with the reduction in prices by 50%."

The government will also launch an initiative for Ethernet broadband services in public universities, with speeds to be increased to a maximum of 100 gigabytes per second.

At the same time, Malaysian Communications and Multimedia Commission (MCMC) will provide RM1 billion to ensure the coverage and quality of broadband nationwide reaches up to 20 megabytes per second. MCMC will additionally provide free tablets to assist teaching to 430,000 teachers, an initiative backed by RM340 million.

To invigorate startups, a total of RM200 million from the Working Capital Guarantee Scheme (WCGS) Fund will be specifically allocated to startups, PM Najib said. To encourage investment in high technology startups, a new pass category, Foreign Knowledge Tech Entrepreneurs, will also be introduced.

Meanwhile, to rejuvenate creative industry and film production, Film in Malaysia Incentive, Arts and Culture Revitalisation Agenda as well as a FINAS Content Creation Hub in Santubong, Sarawak and Kota Kinabalu, Sabah will be implemented. FINAS is the National Film Development Corporation of Malaysia.

Towards empowering bumiputera - the majority Malay ethnic group - the government will allocate:
  • RM100 million to SME Bank to increase opportunities to bumiputera entrepreneurs.
  • RM100 million to AIM, the National Innovation Agency, for their various entrepreneurship programmes.
  • RM300 million to TEKUN to assist small scaled entrepreneurs to develop their businesses including a new scheme, TEMANITA, especially for women micro entrepreneurs.TEKUN was set up to provide simple and quick financing facilities to bumiputeras to kickstart and further expand their businesses.
  • RM200 million to Perbadanan Usahawan Nasional Berhad to implement the Entrepreneurship and Business Premises Financing Programme. The agency provides bumiputeras with financial and corporate support.
  • RM120 million to MARA for various entrepreneurship programmes, among others halal industry enterprises, youth entrepreneur development and integrated entrepreneurship training programme. MARA guides bumiputeras on business and industry.
  • RM500 million as a facilitation fund to TERAJU to assist bumiputera companies to expand their businesses or to start a new busines. TERAJU is the bumiputera steering unit.
  • RM100 million for Export Fund under TERAJU for bumiputera companies to penetrate into international markets; and
  • RM100 million through Yayasan Peneraju Pendidikan Bumiputera for Peneraju Skil dan Iltizam, Peneraju Professional as well as Peneraju Tunas programmes.
According to PM Najib, 97% of all businesses in the country are from the SME sector. "These businesses also contribute 36% of the country’s GDP last year, 65% of total employment and 18% of nation’s exports. Therefore, the Government is confident that SME sector has the capability to propel forward to further increase their contribution to the nation’s economy," he said.

For the year of assessment 2017 and 2018, the government has worked out a scheme where SMEs which have shown an increase in income compared to the previous year of assessment can pay less income tax. The discounted tax is only calculated on the additional chargeable income, however:
  • A one percentage point reduction in income tax for an increase in chargeable income of between 5% to below 10%;
  • Two percentage points for an increase in chargeable income between 10% to below 15%;
  • Three percentage points for an increase in chargeable income between 15% to below 20%; and 
  • Four percentage points for an increase in chargeable income of 20% and above.

In an example given by the PM, if a company’s chargeable income for year of assessment 2016 is RM10 million and RM12 million in the year of assessment 2017, the increase in chargeable income is RM2 million, or 20%. If the income tax imposed on the first RM10 million is 24% or RM2.4 million, then the rest of the chargeable income will be taxed at 20%, 4% less, equalling RM400,000.

"Currently, for all SMEs the tax rate on chargeable income up to the first RM500,000 is reduced from 19% to 18% effective from year of assessment 2017," he continued.

To boost the local vendor development programme in the manufacturing and services sectors, double deduction on expenses incurred by the anchor company will also be extended until December 2020.


Read the full Budget speech