Delivered by YAB Dato' Sri Mohd Najib Tun Haji Abdul Razak, PM and Minister of Finance of Malaysia, Budget 2018 is themed Prospering An Inclusive Economy, Balancing Between Worldly And Hereafter, For The Wellbeing Of Rakyat, Towards TN50 Aspiration.Transformasi Nasional 2050 or TN50 is Malaysia's national transformation strategy between 2020 and 2050 to become one of the top 20 countries in the world, introduced in the Budget last year, and the rakyat refers to the ordinary people of Malaysia.
PM Najib shared that Malaysia aims to:
- Become a high-income advanced economy in 2020;
- Record RM2 trillion of economy and trade value by 2025;
- Benefit from its fourth industrial revolution initiative IR 4.0 by 2030;
- Have a more competitive workforce with nearly zero defects by 2040; and
- Rank among the top 20 advanced countries in the world
The government will continue to focus on infrastructure and socioeconomic development, especially for industries related to petroleum, logistics, aerospace, rail, robotics and automation, and export-oriented industries.
The 2018 Budget, which will be active over an election year, has something for everyone. Some of the projects announced include:
- Development in five economic corridors. RM1 billion has been allocated for developing the South Perak Region comprising Proton City, Educity and Youth City in Tanjung Malim as well as the Bukit Kayu Hitam Duty-Free Zone; construction of a port and industrial park in Tok Bali, Kelantan; and an access road to Baleh Dam, Sarawak. Last year the allocation was RM2.1 billion.
- To attract foreign investment, the Principal Hub tax incentive will be extended to 31 December 2020. The Government will allocate RM200 million to the fund under Malaysian Investment Development Authority (MIDA).
- RM170 million is set aside to upgrade ICT equipment for public safety purposes. This includes upgrading the Royal Malaysia Police's (PDRM's) 1PDRMnet system. Another RM100 million will be used to upgrade its communication systems.
Small and medium sized enterprises (SMEs)
For SMEs PM Najib noted that new measures will be taken towards the target of SMEs contributing 41% of GDP by 2020:
- RM7 billion is allocated under the Skim Jaminan Pembiayaan Perniagaan (SJPP), of which, RM5 billion is to go working capital and RM2 billion with 70% guaranteed by the Government for services sector, including IR 4.0;
- RM1 billion provided as loans to companies with 70% guaranteed by the government. These loans are provided under SJPP to enable SMEs to automate production processes and reduce employment of foreign workers;
- An additional RM1 billion is provided to the SME Financing Scheme, increasing the fund size to RM2.5 billion. A subsidy of 2% will be provided on profit earned to ease the costs of financing;
- A sum of RM200 million is allocated to SMEs for training programmes, grants, and soft loans under SME Corp; and
- About RM82 million is allocated for the development of halal industries and products under various agencies.
The country's exports will be further accelerated by focusing on high-impact export sectors:
- RM150 million for Matrade, MIDA and SME Corp to implement promotional programmes and expand export markets;
- RM1 billion to come from Exim Bank for insurance coverage credit facilities and RM200 million for credit financing facilities to SME exporters; and
- RM100 million is provided as loan with 70% guaranteed by the government to automate production of local furniture for export.
Infrastructure took up a significant portion of the budget. Projects include:
- Construction for the East Coast Rail Link (ECRL) Project which connects Port Klang to Pengkalan Kubor, Kelantan, cutting the journey to under four hours, will begin in January 2018. RM110 million has been allocated to provide an alternative road to Port Klang;
- A second subway line, MRT2 from Sungai Buloh – Serdang – Putrajaya Project, spanning 52 km and comprising 37 stations, with an estimated construction cost of RM32 billion. The government will also expedite the construction of MRT3 or the Circle Line to be completed by 2025, instead of 2027. Furthermore, the construction of a third light rail project, LRT3, will connect Bandar Utama to Johan Setia, Klang, by February 2021.
- The High Speed Rail Project connecting Kuala Lumpur and Singapore, covering 350 km in 90 minutes, is expected to go live by 2026;
- The West Coast Highway from Banting, Selangor to Taiping, Perak is under construction at an estimated cost of RM5 billion.
- RM230 million is allocated in 2018 to continue the construction work on the Central Spine Road, including sections in Kelantan and Pahang;
- Pulau Pangkor in Perak to be a Duty-Free Island. The duty-free status excludes products such as alcoholic beverages, tobacco and motor vehicles; and
- A Special Border Economic Zone to be created in Bukit Kayu Hitam in Kedah, at the Malaysia-Thailand border. "This development includes Free Industrial Zone (FIZ) which will be a new attraction for both domestic and foreign investors," PM Najib said.
- Further, RM3 billion has been allocated to the Transportation Development Fund to procure vessels as well as develop aerospace technology industry and rail. RM1 billion is also allocated to the Public Transportation Fund for working capital and procurement of assets such as buses and taxis;
- RM95 million is allocated to upgrade and construct jetties as well as dredge river estuaries;
- In response to a number of recent express bus accidents, RM45 million is to be used to develop a biometric control system to monitor the bus drivers; and
- RM55 million to subsidise train services in rural areas, from Tumpat, Kelantan to Gua Musang, also in Kelantan - a distance of about 197km.
Infrastructure in Sabah and Sarawak
- RM2 billion has been allocated for the Pan Borneo Highway. "For Sarawak, all the 11 construction packages have been tendered, while five out of 35 packages in the first phase in Sabah have been awarded and the remaining 12 is under tender process," PM Najib said;
- RM1 billion is allocated through Malaysia Communications and Multimedia Commission (MCMC) to develop communication infrastructures and broadband facilities in Sabah and Sarawak;
- RM934 million is allocated for the construction of rural roads, including almost RM500 million for Sabah and Sarawak.
Other infrastructure projects include:
- Upgrading Pulau Pinang International Airport and Langkawi International Airport;
- Building a new airport in Mukah in Sarawak as well as expanding the airports in Kota Bharu, Kelantan and Sandakan, Sabah;
- Studying the feasibility of a new airport in Pulau Tioman; and
- Exploring the construction of a bridge connecting Labuan with the mainland in Sabah,
- Tabung Ekonomi Kumpulan Usaha Niaga (TEKUN) Nasional, a strategic entrepreneur development partner for businesses, receives half a billion ringgit to support micro entrepreneurs.
- In recognition that most of Amanah Ikhtiar Malaysia's (AIM) borrowers are women and good paymasters, RM200 million has been added to the fund. This brings the fund to RM2.7 billion, benefitting nearly 400,000 borrowers.
- RM80 million is allocated under the Rural Economic Financing Scheme (SPED) through Bank Rakyat, and SME Bank to provide financing facilities to rural bumiputera entrepreneurs.
When it comes to capital market measures, the Digital Investment Management Framework, introduced by the Securities Commission of Malaysia in May 2017, sets out licensing and conduct requirements for offering automated discretionary portfolio management services to investors (robo-advisor services). Requirements include:
- Technology capabilities in place including identification of a competent person within the company who has sufficient understanding of the risks and rules of the algorithm applied;
- A risk management framework that is sufficiently robust to manage risks associated with the offering of automated discretionary portfolio management services including cyber security resilience;
- The outcomes produced by the algorithm are consistent with the digital investment manager’s strategy; and
- Written policies are in place to monitor and regularly test the algorithm employed.
Sustainable and responsible investment (SRI) is to be supported through:
- Income tax exemption for recipients of the special Green SRI Sukuk grant totalling RM6 million; and
- Income tax exemption on income from management fees to be expanded to approved conventional SRI fund managers from the years of assessment 2018 to 2020.
- The government will also promote a cashless society and economy through effective employment of foreign workers. The migration from signature-based payment cards to more secure PIN-based payments was enforced from 1 July 2017. Beginning 2018, Bank Negara Malaysia will monitor salary payment through local bank accounts for foreign workers, excluding domestic helpers.
Making TN50 a reality
- Local authorities will be required to ensure that childcare facilities are provided in all new office buildings, starting with Kuala Lumpur.
- Additional tax deductions will be extended to cover employers hiring workers affected by accidents or critical illnesses who have been certified by the Social Security Organisation's (SOCSO) Medical Board that they are still fit to work.
Women recognised in 2018
2018 is the Women Empowerment Year in Malaysia. The government has listed several initiatives for women, including:
- Require at least 30% participation of women as board of directors in government-linked companies (GLCs) and government-linked investment companies (GLICs) as well as statutory bodies by end-2018. GLICs include Minister of Finance, Permodalan Nasional, Khazanah Nasional, Kumpulan Wang Persaraan (KWAP), the Employees Provident Fund (EPF), Lembaga Tabung Haji and Lembaga Tabung Angkatan Tentera;
- Propose maternity leave for the private sector to be increased from 60 days to 90 days as implemented by the public sector;
- RM20 million is allocated to conduct training and entrepreneurship programmes, which including the PEAK Entrepreneur Programme under MyWin Academy for women; and
- Encourage women to return to the workforce. The government proposes that personal tax exemption be given to women who earn up to 12 months of consecutive salary if they have been on a career break for at least two years. The incentive is available for women who return to the workforce between the years of assessment 2018 to 2020.
- In the public sector, the government is to allow working women in their fifth month of pregnancy onwards to leave work an hour earlier, from 1 January 2018. To accompany them, husbands are also allowed to go home an hour earlier on condition that the couple are working within the same location;
- Increase total maternity leave from 300 to 360 days throughout service, subject to a maximum of 90 days a year, beginning 1 January 2018.
Skills acquisition for a future world
RM250 million is allocated for educational projects, including:
- A new science, technology, engineering and mathematics (STEM) centre to develop the latest learning methods to train STEM specialist teachers. The centre will leverage existing facilities at teachers training institutes in collaboration with the Academy of Science Malaysia;
- Enhanced computer science modules including a coding programme in primary and secondary school curriculums, which currently exist in form one to three, the lower secondary classes, where students are typically aged 13 to 15;
- Allocate a sum of RM190 million to upgrade 2,000 classes into 21st Century Smart Classrooms to enhance creative-based learning and innovative thinking;
Recognising the importance of technical and vocational education training (TVET) in raising the quality of the workforce, the government has merged TVET institutions under seven ministries into TVET Malaysia, under the purview of the Ministry of Human Resources. RM4.9 billion has been allocated to implement the TVET Malaysia Masterplan.
- To encourage TVET graduates to pursue their studies, the government will create 100 TVET Outstanding Student Scholarships with a RM4.5 million budget.
- Skilled workers in the rail sector will be particularly crucial given the transportation infrastructure projects in progress and in the pipeline. The government will establish the National Rail Centre of Excellence (NRCOE) to oversee and coordinate quality assurance as well as accreditation of national rail education and training. In addition, Malaysia Rail Link in collaboration with institutions of higher learning will train 3,000 professionals in this industry.
"Malaysians need to be ready, alert and swift through training and retraining in meeting the job market requirements," PM Najib said working individuals.
He said the SL1M Apprenticeship Programme has trained 138,000 graduates to date and will be expanded to take in an additional 5,000 graduates, for a total of 25,000 graduates next year. SL1M provides training and internship for fresh graduates through collaborations with GLCs and participating companies from the private sector and aims to increase the economic attractiveness of unemployed graduates.
- An open interview programme by the SL1M Unit in the Economic Planning Unit will be continued with an allocation of RM40 million.
- Private companies awarded with government contracts are now mandated to allocate 1% of their total project value to SL1M.
- The government will create a one-stop centre incorporating agencies such as JobsMalaysia, SL1M, SOCSO, the Human Resources Development Fund (HRDF) and Unit Peneraju Agenda Bumiputera (TERAJU) in a city-based location called an Urban Transformation Centre (UTC) to provide professional advisory services in seeking employment and training.
- Additionally, a 'talent file' will be created under Talent Corp to shortlist suitable candidates to fill critical and senior posts.
- Life-long learning is also to be encouraged among public servants through in-house Masters and PhD programmes.
Encouraging venture capital funding
The government supports venture capital activities:
- RM1 billion from major institutional investors for investment in venture capital in main selected sectors will be coordinated by the Securities Commission (SC);
- Income tax exemption will now include management and performance fees received by venture capital management companies, effective from year of assessment 2018 to 2022;
- A proposed cut in the minimum investment in venture companies from 70% to 50%, effective for the years of assessment 2018 to 2022;
- Companies or individuals investing in venture capital companies will enjoy tax deductions equivalent to the amount of the investment made in the venture companies, limited to a maximum of RM20 million annually; and
- Income tax exemption incentives are now extended to 31 December 2020 for angel investors, limited to the amount invested in venture companies.
National Blue Ocean Shift (NBOS)
PM Najib said NBOS will be implemented at a faster pace, at a low cost with high impact. The NBOS uses Blue Ocean Strategy techniques to accelerate change.
For 2018, RM300 million is earmarked to implement NBOS programmes, including construction of new UTCs, a Blue Ocean Entrepreneur Township, a mobile community transformation centre (CTC), entrepreneurship programmes, a Global Entrepreneurship Community as well as inclusive and vibrant social entrepreneurs. CTCs bring information and services as well as entrepreneurial opportunities to locals where no transformation centres currently exist.
Fourth industrial revolution
- The government will implement the Malaysia Digital Policy, under which matching grants worth RM245 million will be given under the Domestic Investment Strategic Fund to upgrade smart manufacturing facilities.
- There will also be a centre in Cyberjaya, Selangor to be revamped as a one-stop centre for corporate companies and universities to develop prototype products and elevate innovation.
More tax incentives are now available:
- An extended incentive period on the accelerated capital allowance of 200% on automation equipment from year of assessment 2018 to year of assessment 2020;
- An extended incentive period for the accelerated capital allowance of 200% for manufacturing and manufacturing-related services sectors; and
- A capital allowance for ICT equipment, which includes spending on computer software development, is claimable for the period of four years beginning year of assessment 2018 to 2020, including for SMEs.
Digital Free Trade Zone
Malaysia will be the first in the world outside China to establish a Digital Free Trade Zone (DFTZ) that comprises an e-Fulfilment Hub, Satellite Services Hub and e-Service Platform to stimulate growth in electronic trade, PM Najib said. The DFTZ, announced 22 March 2017, will transform KLIA as the regional gateway, and encouraged development in the e-wallet market in Malaysia. Ant Financial Services Group, the operator of Alipay, has collaborated with Touch 'n Go to transform the payment landscape.
The first phase of the DFTZ aims for 1,500 SMEs to participate in the digital economy and is expected to attract RM700 million worth of investment and create 2,500 job opportunities. In conjunction with this move, the government will:
- Provide RM83.5 million to construct infrastructure for the first phase of DFTZ in Aeropolis, at the Kuala Lumpur International Airport (KLIA); and
- Increase the minimum value for imports from RM500 to RM800 to establish Malaysia as a regional e-commerce hub.
- To maintain an ecosystem conducive to innovation the government will also expand the regulatory sandbox approach to facilitate companies to test new ideas and business models.
- RM100 million to expand eRezeki, eUsahawan and the eLadang Programmes under the Malaysia Digital Economy Corporation (MDEC). The eRezeki initiative helps individuals become part of the online workforce; eUsahawan exposes Malaysian youth and micro entrepreneurs to digital entrepreneurship; while eLadang is a new programme around smart agriculture; and
- RM120 million will go towards loans to 1,000 1Malaysia Food Truck (FT1M) and 1Malaysia Mobile Food Kiosk entrepreneurs through Bank Rakyat and Bank Simpanan Nasional. The government will provide a subsidy of 4% on the interest rates;
- RM60 million to implement the 1AZAM Programme, including RM10 million for Sabah and RM10 million for Sarawak. 1AZAM is designed to lift low-income earners and the hardcore poor families out of poverty; and
- RM25 million for Three-Wheeled Motorcycle Programme under the Federal Agricultural Marketing Authority (FAMA), GiatMara mobilepreneur and MyAGROSIS programmes. Under the Three-Wheeled Motorcycle Programme, excess agricultural produce in villages can be collected by entrepreneurs riding the motorcycles and then delivered for sale at various outlets.
Mobilepreneurs refer to those who can build a business around the use of a motorcycle or scooter, such as delivery services or services conducted in homes. MyAGROSIS is an organisation that aims to increase food production and keep food costs low.
- In line with IR 4.0, all registered taxi drivers who wish to shift to work for e-hailing companies can draw on a grant amounting to RM5,000 towards the purchase of a new car.
Increasing disposable income
BR1M, an initiative introduced by the government in 2012 targeted at helping households that earn RM4,000 and below or single individuals who earn RM2,000 and below a month, has proven to be effective, PM Najib said. "BR1M is an efficient form of cash transfer to assist the B40 households," he said. B40 refers to the bottom 40% of households, which typically have a monthly income of RM3,900 and below.
"In 2017, BR1M has benefited 7 million recipients with an allocation of RM6.8 billion. Likewise, in 2018, those recipients to continue to benefit from the BR1M cash transfer of up to RM1,200."
For the M40 group, otherwise known as mid-income range households with income of less than RM9,000, there will be individual income tax rate reductions:
- For people in the income tax band from RM20,001 to RM35,000, the rate is reduced from 5% to 3%;
- Those earning RM35,001 to RM50,000 in a year will see the rate reduced from 10% to 8%; and
- Reductions for the income tax band from RM50,001 to RM70,000 go down from 16% to 14%.
"This measure will increase the disposable income of the rakyat between RM300 to RM1,000. It is estimated that additional disposable income of RM1.5 billion can be spent by the rakyat. With this measure more that 261,000 individuals are no longer subjected to income tax," PM Najib said.
- Effective 1 January 2018, tolls will be abolished at Batu Tiga and Sungai Rasau, Selangor; Bukit Kayu Hitam, and the Eastern Dispersal Link, Johor.
- Public servants received a number of benefits, including new rulings on medical support, working hours, promotions, leave and retirement. RM1,500 will be paid out twice over the course of the fiscal year to public servants, and RM750 to government retirees over the same period.
1Malaysia Retirement Scheme
- The self-employed and those with variable income will receive government contributions of up to 15% subject to a maximum of RM250 annually under the 1Malaysia Retirement Scheme (SP1M) managed by EPF. The contribution begins from 2018 to 2022. SP1M helps to ensure that the self-employed and individuals without fixed monthly income have their own savings plan upon reaching the retirement age.
Goods and services tax (GST)
According to PM Najib, the GST "saved the economy this year" with RM41 billion collected. GST, imposed from July 2017, sees some new exemptions:
- Services provided by local authorities, effective 1 April 2018 or 1 October 2018, according to the choice of local authorities;
- Reading materials comprising all types of magazines and comics will be zero-rated, effective 1 January 2018;
- Cruise operators are given relief from paying GST on handling services provided by port operators in Malaysia. This relief will be effective from 1 January 2018 to 31 December 2020; and
- Construction of school buildings and houses of worship, funded through donations are given GST relief. This applies for construction contracts signed on or after 1 April 2017;
- Imports of oil and gas-related equipment under a lease agreement, supplied to customers in Malaysia by companies in designated areas, namely, Labuan, Langkawi and Tioman are given GST relief effective from 1 January 2018;
- Imports of big ticket items such as aircraft and ships by airline and shipping companies registered in Malaysia are given GST relief. GST relief are also given to companies in the oil and gas industry, importing oil rigs or floating structures, effective from 1 January 2018; and
- The management and maintenance services of stratified residential buildings supplied by the Joint Management Body (JMB) and management corporations are not subject to GST. This treatment is expanded to cover the management and maintenance services provided by housing developers, effective from 1 January 2018.
Datuk Yasmin Mahmood, CEO, MDEC commented in a blog post that the RM100 million allocation for the eRezeki and eUsahawan programmes will ensure that the digital economy continues to be inclusive for the well-being of the rakyat, and in particular the B40 and M40 groups.
"With both programmes going into their third year, we estimate that 150,000 rakyat would be trained in 2018; resulting in 341,745 rakyat participating in both programmes with an estimated total income and revenue of RM544 million according to calculations," she said in the MDEC blog.
"We are also pleased to note that digital inclusivity has also been extended to a new flagship initiative called eLadang to encourage farmers to leverage the latest smart farming technologies (such as IoT [the Internet of Things] and BDA [big data anaytics]) to improve yield and pendapatan (income)."
Datuk Yasmin also commented on the measures to encourage more venture capital activities. "This is a visionary stance by the Malaysian government as the startup ecosystem is the job creators of the future. We introduced two highly successful initiatives last year*, the first being the Malaysia Digital Hub initiative that supports startups and communities while creating greater opportunities for them to connect to the ASEAN and global digital ecosystem; and secondly, the Malaysia Tech Entrepreneur Programme (MTEP) – an initiative by the Malaysian Government that aims to attract global technopreneurs and help them to realise their fullest potential out of Malaysia and to scale their businesses regionally and globally," she said.
Malaysia Digital Hub supports tech and digital co-working spaces, their startups and communities with support from the government. Growing startups, global tech companies, accelerators as well as talent builders and investors are targeted with incentives such as coaching and mentorship, access to funding, and freedom of ownership for foreign companies.
The MTEP is focused on attracting gifted and ambitious individuals from all over the world, and helping them to kickstart their startups in Malaysia. Under the MTEP, both new and established entrepreneurs can apply to set up a startup in Malaysia, with the application process to take up to 21 days.
Datuk Yasmin also called the new digital free trade zone a game changer. "DFTZ is proving to be a massive game changer for Malaysia which will see Malaysia’s SMEs doubling exports, and establish Malaysia as a regional transshipment hub for e-commerce logistics while creating 60,000 jobs by 2025," she said.
"I am happy to say that the DFTZ will 'go live' on 3 November and 1,900 export-ready SMEs will be flagged off to begin their export journey. This is an encouraging number of SMEs as our previous target was 1,500 SMEs.
"For the first time, the world will see a physical and virtual zones with additional online and digital services to facilitate cross border e-commerce and invigorate internet based-innovation."
Read the text of the 2018 Budget speech
Hashtags: #Bajet, #Bajet2018
*Datuk Yasmin is referring to the fiscal rather than the calendar year. Both initiatives were introduced in April 2017, the previous fiscal year.