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Tuesday, October 29, 2013

Budget 2014 and the corporate sector (update 6)


Published: Friday October 25, 2013 MYT 4:30:00 PM 
Updated: Friday October 25, 2013 MYT 7:59:09 PM



KUALA LUMPUR: The theme for the Budget 2014 proposals ‘Strengthening Economic Resilience, Accelerating Transformation & Fulfilling Promises’ with 5 main thrusts, says Prime Minister Datuk Seri Najib Tun Razak.

Below are the highlights of the Budget 2014 proposals and the impact on the corporate sector:

The 2014 Budget is formulated to ensure that the economy continues to expand at a strong pace, and to reduce the fiscal deficit, with the overall objective of prospering the nation and promoting the well-being of the rakyat.

Towards this, the 2014 Budget is formulating based on the theme “Strengthening Economic Resilience, Accelerating Transformation And Fulfilling Promises”,outlining five main thrusts:

First Thrust: Invigorating Economic Activity

Second Thrust: Strengthening Fiscal Management

Third Thrust: Inculcating Excellence in Human Capital

Fourth Thrust: Intensifying Urban and Rural Development

Fifth Thrust: Ensuring Well-Being of the Rakyat

For the whole of 2013, the domestic economy is expected to expand between 4.5% and 5%. Growth is supported by private investment, increasing 16.2% to an estimated RM165 billion. In addition, private and public consumption are expected to grow 7.4% and 7.3%, respectively mainly supported by strong domestic economic activity.

Public investment

Public investment is estimated to reach RM106 billion. Projects to be implemented include construction of the 316-kilometre West Coast Expressway from Banting to Taiping as well as double-tracking projects from Ipoh to Padang Besar, and later from Gemas to Johor Bahru.

Tourism

To further promote the tourism industry, a sum of RM2 billion will be provided to the Special Tourism Infrastructure Fund under Bank Pembangunan Malaysia. The Fund will provide soft loans at low interest rates between 4% and 6%, with the Government providing a subsidy of 2%.

The Fund will be used to finance the cost of building infrastructure such as hotels, resorts and theme parks as well as purchase and replacement of equipment related to the tourism sector.

High Speed Broadband

To expand coverage in major towns, the Government will implement the second phase of HSBB project in collaboration with the private sector involving an investment of RM1.8 billion. The initiative is expected to provide additional coverage and facilities mainly in urban areas, benefiting 2.8 million households nationwide. The Internet speed will be increased to 10 Mbps.

The HSBB network will be expanded to suburban areas with an Internet access speed increasing to between 4 and 10 Mbps, which will benefit 2 million consumers at a cost of RM1.6 billion.

To increase Internet access in Sabah and Sarawak, new underwater cables will be laid within 3 years, at a cost of RM850 million.

Strengthening the financial market

Currently, the domestic bond market is the largest in Southeast Asia with a value exceeding RM1 trillion, while daily transactions in the foreign exchange and money markets are more than RM30 billion. To ensure efficient operations of financial markets, a clear regulatory framework is required.

In this regard, amendments will be made to existing laws and Bank Negara Malaysiawill lead the initiative in formulating the Netting Act to protect enforcement rights of “close-out netting” under the financial contract. This is to reduce credit risk and promote the derivatives market, thereby reducing systemic risks in the domestic financial market as well as reduce the cost of doing business.

Empowering Bumiputeras

To increase Bumiputera equity ownership, SME Bank will establish Bumiputera Equity Fund (EquiBumi) with an allocation of RM300 million to provide loans to credible Bumiputera companies to take over listed companies or companies with potential to be listed on Bursa Malaysia.

In addition, an allocation of RM200 million is provided by the SME Bank for loan facility for the development programmes for Malay Reserve Lands in strategic areas such as Kampung Baru, Kampung Pandan and Kampung Datuk Keramat. This facility will help to improve the standard of living of the Malay community in line with the rapid development in the surrounding area.

The Government will continue to increase Bumiputera participation in business and entrepreneurship to generate income and wealth. Among programmes to be implemented are the establishment of Bumiputera Entrepreneurs Start-Up Scheme (SUPERB) with an initial fund of RM30 million. 

Promoting Aviation Industry

To improve operations management and air traffic control, the Government will replace the existing air traffic control management system in Subang that is almost 20 years old. A new air traffic management centre costing RM700 million will be built at KLIA. 

The new system will facilitate an increase in air traffic from 68 to 108 movements per hour on 3 runways. This will be among the highest capacity in handling air traffic worldwide.

Tourism

To further promote the tourism industry, a sum of RM2 billion will be provided to the Special Tourism Infrastructure Fund under Bank Pembangunan Malaysia.

The Fund will provide soft loans at low interest rates between 4% and 6%, with the Government providing a subsidy of 2%. The Fund will be used to finance the cost of building infrastructure such as hotels, resorts and theme parks as well as purchase and replacement of equipment related to the tourism sector.

Pension Scheme

In 2010, the Government established the 1Malaysia Pension Scheme (SP1M), for the self-employed without fixed income to contribute voluntarily to the Employees Provident Fund (EPF). To date, about 66,000 contributors have participated in the scheme with total savings exceeding RM240 million.

To encourage more people to participate in the scheme, I propose that the Government increases its contribution from 5% to 10%, or from a maximum of RM60 to RM120 per year. This will be effective from 1 January 2014 to end-2017 and is expected to attract 30,000 new contributors.

The Government recognises the importance of savings from an early age to ensure sufficient savings after retirement. To further increase savings, the Government encourages youth to undertake long-term investment through the Private Retirement Scheme (PRS).

Towards this, the Government proposes a one-off incentive of RM500 to contributors who participate in the PRS scheme with a minimum cumulative investment of RM1,000 within a year.

The incentive, which is available for individuals aged between 20 and 30 years, is expected to attract 420,000 youth contributors nationwide. The incentive will be implemented from 1 January 2014, for a period of 5 years, involving an allocation of RM210 million.

Strengthening Small and Medium Enterprises

The Government has implemented the Minimum Wage Policy on 1 January 2013. The monthly minimum wage is RM900 in Peninsular Malaysia, and RM800 in Sabah, Sarawak and Labuan. To encourage compliance with this new policy, and to reduce the financial impact to SME employers, co-operatives, societies and associations, the Government proposes that the difference in the wages paid by employers for the period of 1 January 2014 to 31 December 2014 be given further tax deduction.

Improving Budget Management

The Government is committed to reducing the fiscal deficit gradually, with the aim of achieving a balanced budget by 2020. The Government will also ensure that Federal debt level will remain low and not exceed 55% of GDP.

Goods and Services Tax (GST)

The Government proposes that the sales tax and service tax be abolished. These two taxes will be replaced by a single tax known as the Goods and Services Tax (GST).

Currently, the inflation rate is low at 2%. The Government believes that this is the best time to implement GST as the inflation rate is low and contained.

With the implementation of GST, the Government will be able to address the weaknesses in the current taxation system.

The GST rate is fixed at 6% and to be effective from 1 April 2015, approximately 17 months from today.

Sale, purchase and rental of residential properties as well as selected financial services are exempted from GST.

Strengthening Skills Training

At present, there are 13,000 registered employers who contribute a levy of 1% of the monthly wages of workers to the Human Resource Development Fund (HRDF). The levy is used to train and upgrade the skills of workers.

HRDF will provide RM400 million for registered companies to give opportunities to employees to enrol in upskilling and reskilling programmes. The allocation can also be used by these companies to train apprentices and future workers.

Increasing Home Ownership, RPGT

To increase the ability of the rakyat to buy a house and ensure stable house prices, as well as to control excessive speculative activities, the Government will implement the following steps :

First: Review Real Property Gains Tax (RPGT). For gains on properties disposed within the holding period of up to 3 years, RPGT rate is increased to 30%, whereas for disposals within the holding period up to 4 and 5 years, the rates are increased to 20% and 15%, respectively. For disposals made in the sixth and subsequent years, no RPGT is imposed on citizens, whereas companies are taxed at 5%.

For non-citizens, RPGT is imposed at 30% on the gains from properties disposed within the holding period of up to 5 years and for disposals in the sixth and subsequent years, RPGT is imposed at 5%.

Second: Increase the minimum price of property that can be purchased by foreigners from RM500,000 to RM1,000,000;

Third: Increase transparency in property sales price, where property developers will have to display detailed sales price including all benefits and incentives offered to buyers such as exemption of legal fees, stamp duty, sales agreements, cash rebates and free gifts; and

Fourth: Prohibit developers from implementing projects that have features of Developer Interest Bearing Scheme (DIBS), to prevent developers from incorporating interest rates on loans in house prices during the construction period. Therefore, financial institutions are prohibited from providing final funding for projects involved in the DIBS scheme.

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