Key Takeaways from Malaysia’s 2014 Budget

Malaysia’s 2014 Budget was tabled in Parliament on the 25th of October, Friday. The budget, themed “Strengthening Economic Resilience” was tabled by Prime Minister Datuk Seri Najib Razak.

Below are some of the key highlights from the budget that has instigated much talk among Malaysians.

Abolishment of Sugar Subsidies

According to Domestic Trade, Cooperatives and Consumerism Minister Datuk Hasan Malek, the decision to abolish sugar subsidies will help the government save almost RM325 million next year.

The decision to abolish sugar subsides, effective immediately, could help the government save RM64 million by the end of the year.

Based on the budget, the government has withdrawn its 34sen per kg sugar subsidy, which raised the price from RM1.50 per kg to RM1.84 per kg.

Implementation of Goods and Services Tax

The public has voiced out their displeasure at the implementation of the Goods and Services Tax (GST) to replace the current sales tax and service tax. But the government assures the public that the implementation of GST would not be a burden to consumers as it will be lower than the current tax rate.

According to Mohd Rozlan Mohamed Ali, Malaysian Association of Tax Accountants GST technical unit, the implementation of GST would benefit consumers as the rate would be reduced from 10% to 6%. He said that the GST will reduce the disposable income when income tax is being cut between one and three percentage points for individual taxpayers. Rozlan also said that the current tax system has its weaknesses such as double taxation and multiple taxation. The implementation of GST will resolve these problems.

No doubt the price of some items will increase, but there will also be goods with lower prices.
“Goods without sales tax like perfumes will probably increase in price while items like clothing will be cheaper. In a worst-case scenario, the traders will not adhere to the system and retain their goods prices even after GST being implemented,” he said.

According to the Prime Minister, the sales tax and services tax will be abolished and replaced with GST on the 1st of April, 2015. The GST rate has been fixed at 6%.

Promoted

RM13.2 billion Allocated for Armed Forces to Tighten Border Security

The Malaysian Armed Forces will receive RM13.2 billion to tighten border security, according to the Budget.

The government also allocated RM2.4 billion to add six Offshore Patrol Vessels, four cargo planes, tanks, and support equipment. RM75 million was also allocated for 2014 to sustain ESSCOM (Eastern Sabah Security Command) operations and RM48 million was allocated for the welfare of 20,000 armed forces veterans to cover medical treatment, ex-gratia and education, in appreciation of the contributions. The Prime Minister also said that an additional RM202 million will be allotted to build and restore armed forces quarters, as well as school buses for the children in place of army trucks.

Budget for Telecommunication

The Budget will allocate RM1.8 billion for the implementation of phase two of the High Speed Broad Band (HSBB) project.

“The increased broad band speed in the suburbs and rural areas and the installation of new undersea cables will strengthen integration between the people in the peninsula and those in Sabah and Sarawak,” said Telecommunications and Multimedia Minister Datuk Seri Ahmad Shaberry Cheek.

“In fact, the 1,000 telecommunication towers to be erected in the rural areas will also improve internet connection and enable the people to get in touch with each other faster,” he said.

Income Tax Rate Reduced

Prime Minister Datuk Seri Najib proposed that the individual income tax rate be reduced by one to three percentage points for all taxpayers to increase their disposable income. This will be effective from 2015

“With this measure, 300,000 persons who currently pay income tax will no longer do so,” said Najib, who is also the Finance Minister, when tabling the Budget 2014 in Parliament.

Families with a monthly income of RM4,000 will no longer have a tax liability and other existing taxpayers will also enjoy tax savings.

The reduced income tax rate is one of the various forms of assistance being extended to the people during the transition period for implementation of GST.

Najib said the individual income tax structure will also be reviewed to enhance the competitiveness of the nation as well as retain and attract talented and skilled workers to the country.

Promoted

“To ensure a more progressive tax structure, the chargeable income subject to the maximum rate will be increased from exceeding RM100,000 to RM400,000.

“The current maximum tax rate at 26% will be reduced to 24%, 24.5% and 25%,” he added.

RM700 million Allocated for Air Traffic Management Centre

The government has allocated RM700 million to build a new air traffic control management centre at the Kuala Lumpur International Airport (KLIA) in Sepang. This, according to the Department of Civil Aviation, will have a positive impact on the national aviation industry. The new centre will replace the existing 20-year old air traffic control management system in Subang.

Director-General Datuk Azharuddin Abd Rahim said passenger comfort and the growth of the industry would be enhanced without compromising the security level at the new centre, work on which would begin mid-2014. He also said that the new system would help optimise flight movement in Peninsular Malaysia especially at the KLIA, where there is an increase of flight movement on the runways from 68 flights per hour to 108 flights per hour.

Government Allocates RM1.2 billion to Construct and Upgrade Dams and Water Treatment Plants

The government has allocated RM1.2 billion to construct and upgrade dams and water treatment plants in urban areas to prevent supply disruptions.

“The country’s water reserve has yet to reach the 20% target resulting in disruptions, especially during peak hours,” said Najib.

The government has also allocated RM63 million to establish 24 Residents Representative Committees in each local authority area to enhance urban well-being and coordination.

Below is a list of the full Budget tabled at Parliament last Friday, October 25th, 2013.

  • Malaysia’s domestic economic growth is projected at a strong pace of 5.0% and 5.5%.
  • Unemployment rate is estimated at 3.1%. Inflation rate is between 2% and 3%.
  • Construction sector is expected to grow 9.6%. Goods export is expected to grow 2.5%.
  • Per capita income for 2014 is expected to reach RM34,126 compared with RM24,879 in 2009, an increase of 37% over six years.
  • Possibility of Malaysia achieving developed nation status earlier than 2020.
  • Public investment estimated to reach RM106 billion.
  • Some of the project to be implemented include a 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.
  • Projects to be undertaken by Petronas include Sabah Ammonia Urea Project in Sipitang; integrated oil and gas production development project, Kebabangan; regasification plant project, Lahad Datu; and RAPID, Pengerang.
  • Government to allocate RM1.6 billion for development in the five regional corridors.
  • Agropolitan project and oil palm-based industries to be implemented in Sabah Development Corridor, Samalaju Industrial Park and Halal hub in Sarawak Regional Corridor.
  • Services Sector Blueprint to be launched in 2014.
  • Logistics Sector Master Plan and National Aviation Policy to be formulated.
  • RM3 billion in soft loans under the Maritime Development Fund through Bank Pembangunan Malaysia.
  • To replace existing air traffic control and management system in Subang. A new air traffic management centre costing RM700 million will also be built at KLIA.
  • Airports in Kota Kinabalu, Sandakan, Miri, Sibu and Mukah to be allocated RM312 million for upgrading works.
  • Passenger terminals in Langkawi International Airport and Kuantan Airport to be upgraded.
  • Second phase of HSBB project to be implemented in collaboration with private sector involving RM1.8 billion investment.
  • Internet speed to be increased to 10 Mbps. Also, over the next three years, over1,000 telecommunications transmission towers will be built with a RM1.5 billion investment.
  • To increase internet coverage in rural areas. New underwater cables will be laid within 3 years, at a cost of RM850 million, to increase internet access in Sabah and Sarawak.
  • Bank Negara Malaysia to lead in formulating the Netting Act to protect enforcement rights of “close-out netting” under the financial contract.
  • Environmental, Social and Governance Index (ESG) to be introduced.
  • Securities Commission to introduce Framework of Socially Responsible Sukuk Instrument.
  • To establish a SRI Fund to be invested in listed companies.
  • Value cap to allocate RM1 billion to invest in companies that score high on the Environmental, Social and Governance Index Index.
  • National Entrepreneur Development Office to be established to plan and coordinate all activities related to entrepreneurship.
  • A RM50 million allocation for Malaysian Global Innovation and Creativity Centre (MaGIC).
  • Committed 1Malaysia Entrepreneurs (1MeT) to be given further guidance at MaGIC.
  • Government targets 5,000 young entrepreneurs to be trained yearly.
  • RM4.1 billion to be provided for basic rural infrastructure projects, including RM980 million to upgrade 437 km of rural road networks nationwide and RM500 million for Pan-Borneo Highway project.
  • RM109 million allocation to enhance economic development and well-being of Orang Asli community; RM50 million for land surveying and customary land ownership verification.
  • Police and Armed Forces (ATM) allocated RM8.8 billion and RM13.2 billion respectively to reduce crime and enhance military preparedness.
  • RM75 million proposed to further strengthen East Coast Special Security Area (ESSCOM) operations.
  • RM48 million allocation to cater for the welfare of 20,000 armed forces veterans, including health payments, ex-gratia and education; RM202 million to build and refurbish ATM quarters.
  • RM15 million launching grant for the creation of Malaysian Green Foundation to promote use of green technology among corporate sector and general public.
  • Health sector allocated RM22.1 billion; RM150 million to appoint 6,800 more nurses; RM3.3 billion to purchase medicine and medical equipment.
  • Abolition of 34 sen sugar subsidy effective Oct 26, 2013 in a bid to encourage Malaysians to reduce sugar intake.
  • Women, Family and Community Development Ministry allocated RM2.2 billion
  • For civil servants, eligibility to qualify for public sector TASKA fee of RM180 per month now extended to households with monthly income of RM5,000 compared with RM3,000 previously.
  • SME Bank to 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.
  • RM441 million allocated for the development and welfare of the disabled.
  • RM100 million allocation to enhance education performance and skills training for Malaysian Indian community.
  • Malaysia to host 5th Global Social Business Summit on Nov 7-9, 2013.
  • RM50 million to reduce graduate unemployment under Graduate Entrepreneurship Fund to be managed by SME Bank.
  • The Fund will provide soft loans of up to RM500,000 at interest rate of 4 per cent.
  • RM120 million for an integrated package to increase innovation and productivity of SMEs.
  • Some incentives under Green Lane Policy programme to be extended until Dec 31, 2017.
  • Difference in minimum wages paid by employers for the period of Jan 1, 2014 to Dec 31, 2014 to be given further tax deduction.
  • RM100 million to create Night Market Traders Entrepreneur Scheme under Bank Simpanan Nasional.
  • Ministry of Health, Ministry of International Trade and Industry, and Ministry of Finance to undergo performance evaluation based on Outcome-Based Budgeting (OBB).
  • To conduct audit on projects valued at more than RM100 million.
  • Monthly Tax Deduction as Final Tax, effective from 2014 assessment year.
  • To set up Implementation and Coordination Unit, with JPM to lead the initiative to avoid duplication in welfare assistance provision.
  • Sales tax and service tax to be abolished, to be replaced by Goods and Services Tax (GST) effective April 1, 2015.
  • GST rate is fixed at 6 per cent.
  • GST will not be imposed on piped water and first 200 units of electricity per month for domestic consumers.
  • GST will not be imposed on basic food items, piped water supply, the first 200 units of electricity per month for domestic consumers, services provided by the government such as issuance of passports and licences, health services, school education.
  • Transportation services such as bus, train, LRT, taxi, ferry, boat, highway tolls as well as education and health services are exempted from GST.
  • Also exempted from GST are transportation services as well as sale, purchase and rental of residential properties and selected financial services.
  • Corporate income tax rate to be reduced by 1 percentage point from 25 per cent to 24 per cent.
  • Upon implementation of GST in 2015, government to provide one-off RM300 cash assistance to households who are BR1M recipients; individual income tax rates reduced by 1 to 3 percentage points for all tax payers; individual income tax structure reviewed.
  • Income tax rate for SMEs to be reduced by 1 percentage point from 20 per cent to 19 per cent from year of assessment 2016.
  • Cooperative income tax rate to be reduced by 1 to 2 percentage points from year of assessment 2015.
  • Secretarial fee and tax filing fee are allowed as tax deductions from year of assessment 2015.
  • Cost of purchasing ICT equipment and software is given Accelerated Capital Allowance until year of assessment 2016.
  • Individual income tax rates to be reduced by one to three percentage points for all tax payers.
  • Chargeable income subject to maximum rate to be increased from exceeding RM100,000 to exceeding RM400,000.  *Current maximum tax rate at 26 per cent to be reduced to 24 per cent, 24.5 per cent and 25 per cent.
  • These measures to be effective from 2015.
  • RM54.6 billion or 21% of 2014 Budget allocated to accelerate academic achievement, competencies and skills; RM831 million allocated to build 33 new schools and upgrade existing ones.
  • RM450 million to be added to the Special Fund for Building, Upgrading and Maintenance of Schools.
  • Allocation of RM600 million in research grants for public institutions of higher learning; RM110 million for MyBrain15 programme which finances tuition fees at post-graduate level, especially for private sector executives.
  • Human Resource Development Fund to provide RM400 million for upskilling and reskilling programmes meant for employees of registered companies; can also be used to train apprentices and future workers.
  • RM100 schooling assistance to all primary and secondary school students as well as RM250 book vouchers to continue, with allocations of RM540 million and RM325 million respectively.
  • RM130 million allocated to subsidise rural air transport, especially for rural population in Sabah and Sarawak; RM52.9 million allocated to subsidise uneconomical train routes in Pahang and Kelantan, move to benefit some 600,000 commuters.
  • RM1.2 billion allocated to build and upgrade dams and water treatment plants to increase coverage of water supply to 100%, especially in urban areas.
  • Expenses incurred for training in accounting and ICT relating to GST to be given further tax deduction for years of assessment 2014 and 2015.
  • Training grant of RM100 million to be provided to businesses that send employees for GST training in 2013 and 2014.
  • RM150 million financial assistance for SMEs to purchase accounting software in 2014 and 2015.
  • GST Monitoring Committee to be established and chaired by Second Minister of Finance Datuk Seri Ahmad Husni Hanadzlah to ensure smooth implementation of GST.
  • RM2.9 billion allocated for Ipoh-Padang Besar double-tracking project and later extending to Johor Baharu as well as upgrading rail tracks nationwide.
  • Expenses incurred for training in accounting and ICT relating to GST to be given further tax deduction for years of assessment 2014 and 2015.
  • Training grant of RM100 million to be provided to businesses that send employees for GST training in 2013 and 2014.
  • RM150 million financial assistance for SMEs to purchase accounting software in 2014 and 2015.
  • GST Monitoring Committee to be established and chaired by Second Minister of Finance Datuk Seri Ahmad Husni Hanadzlah to ensure smooth implementation of GST.
  • RM2.9 billion allocated for Ipoh-Padang Besar double-tracking project and later extending to Johor Baharu as well as upgrading rail tracks nationwide.
  • RM62 million for ‘park and ride’ facilities at LRT, KTM Komuter and ERL stations.
  • RM15.3 million for Centralised Taxi Service System to ensure efficient mobilisation of taxi services.
  • RM28 million for building ‘last city terminals’, upgrading of bus stops and providing ‘drop-and-ride’ facilities.
  • RM28 million for refurbishing Electric Multiple Unit trains to ensure frequency and efficiency of services.
  • RM20 million for Rural Business Challenge programme.
  • Bumiputera equity holdings and property ownership to be increased through Skim Jejak Jaya Bumiputera, Skim Amanah Saham Bumiputera 2 and strengthening of Bumiputera real estate institutions.
  • SME Bank to establish Bumiputera Equity Fund 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.
  • RM200 million loan facility by SME Bank for development programmes for Malay Reserve Lands in strategic areas.
  • Bumiputera Entrepreneurs Start-Up Scheme (SUPERB) to be set up with RM30 million initial fund.
  • Expenses incurred by anchor companies, especially GLCs, to be given double tax deduction in order to enhance vendor development programmes.
  • RM15.3 million for Centralised Taxi Service System to ensure efficient mobilisation of taxi services.
  • RM28 million for building ‘last city terminals’, upgrading of bus stops and providing ‘drop-and-ride’ facilities.
  • RM28 million for refurbishing Electric Multiple Unit trains to ensure frequency and efficiency of services.
  • RM20 million for Rural Business Challenge programme.
  • Bumiputera equity holdings and property ownership to be increased through Skim Jejak Jaya Bumiputera, Skim Amanah Saham Bumiputera 2 and strengthening of Bumiputera real estate institutions.
  • SME Bank to establish Bumiputera Equity Fund 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.
  • RM200 million loan facility by SME Bank for development programmes for Malay Reserve Lands in strategic areas.
  • Bumiputera Entrepreneurs Start-Up Scheme (SUPERB) to be set up with RM30 million initial fund.
  • Expenses incurred by anchor companies, especially GLCs, to be given double tax deduction in order to enhance vendor development programmes.
  • Soft loan facilities for SMEs from Amanah Ikhtiar Malaysia (RM300 million fund) and TEKUN (RM700 million fund).
  • RM50 million to be provided through Skim Pembiayaan Muda India (SPUMI) under TEKUN.
  • Loans also available for Malaysian Indian entrepreneurs through Amanah Ikhtiar Malaysia.
  • Real Property Gains Tax increased to 30 per cent for properties disposed of within holding period of up to three years.
  • Minimum price of property that can be purchased by foreigners increased from RM500,000 to RM1 million.
  • 223,000 units of affordable houses to be built by government and private sector in 2014.
  • RM578 million for National Housing Department (JPN) to build 16,473 Program Perumahan Rakyat housing units.
  • RM146 million for JPN to build 600 units for Program Perumahan Rakyat Disewa and Perumahan Rakyat Bersepadu.
  • RM1 billion for PR1MA to provide 80,000 housing units at prices 20 per cent lower than market prices.
  • SPNB to build 15,122 units of affordable houses, 3,000 units of Rumah Idaman Rakyat and 8,000 units of Rumah Mesra Rakyat.
  • New category of Rumah Mesra Rakyat introduced with sales price from RM45,000 to RM65,000 and subsidy of RM15,000 to RM20,000 per unit.
  • Private Affordable Ownership Housing Scheme (MyHome) introduced with subsidy of RM30,000 to private developers for each unit built.
  • RM1 billion for Housing Facilitation Fund under Public Private Partnership Unit (UKAS).
  • National Housing Council to be set up to further strengthen real estate market and increase opportunities for rakyat to own houses.
  • RM331 million allocation to continue price uniformity programme and subsidies including transport costs in Sabah and Sarawak.
  • RM30 million to open 60 Kedai Rakyat 1Malaysia (KR1M) to help reduce prices of daily necessities.
  • Special tax relief of RM2,000 for tax payers with monthly income of up to RM8,000 received in 2013.
  • RM82 million allocated to rehabilitate 20 abandoned housing projects involving 8,197 houses.
  • Proposed establishment of National Housing Council to further strengthen the real estate market and increase opportunities for the people to own houses.
  • BR1M to households with a monthly income of below RM3,000 increased from RM500 to RM650; and for the first time, BR1M assistance of RM450 to be extended to households with monthly income of between RM3,000 and RM4,000.
  • BR1M increased from RM250 to RM300 for single individuals aged 21 and above and with a monthly income not exceeding RM2,000.
  • Pensioners to receive special financial assistance of RM250.
  • A half-month bonus for 2013 with minimum payment of RM500 announced, to be paid in early January 2014.

Story and quote from: The New Straits Times and Bernama

Homepage highlight photo credit: Giselleai, Flickr

Read more: A Review of Malaysia’s 2013 Budget

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