Key takeaways for people leaders from Malaysia’s Budget 2020
Malaysian Finance Minister Lim Guan Eng tabled the Budget 2020 to the Dewan Rakyat recently. This year’s budget revolves around the theme of “Driving growth and equitable outcomes towards shared prosperity,” in the amount of RM 297.02 Bn
The focus areas for the budget include: driving economic growth in the new economy and digital era, investing in Malaysians: levelling up human capital, creating a united, inclusive, and equitable society, revitalisation of public institutions and finances.
Last year, the Budget 2019 themed “Credible Malaysia, Dynamic Economy, Prosperous Rakyat” also tabled by Lim Guan Eng, provided an allocation of RM 314.5 Bn.
A few aspects of the budget that will have a direct impact on the landscape of work and people in the country and also the economy’s business climate for years to come are included here:
Incentivising Malaysians to takeover jobs from foreign workers
An increased focus on expanding job opportunities for local Malaysians from the government is visible through the budget announcement as well. Those Malaysians who will replace foreign workers will be given a monthly incentive of RM 350 or RM 500 for two years, as per the sector that they are employed in. At the same time, employers will get a monthly incentive of RM 250 over a period of two years.
Gearing up for a global trade war
The burgeoning US-China trade war has led to uncertainty in the Malaysian economy as well. As a consequence of this global war, the World Trade Organization (WTO) has reduced its forecast for trade growth for 2019 from 2.6 percent earlier in the year to 1.2 percent in October 2019, which also happens to be the lowest since 2009.
Inspite of the ongoing trade war, Malaysia has experienced faster growth in Q2 compared to Q1 in 2019. Malaysian exports reduced by 0.4 percent as compared to the last year in the first eight months of the year. The country’s exports are expected to still pick up and record a positive growth by the end of the year. Also, Malaysia recorded RM 92.5 Bn worth of trade surplus which happens to be 28.7 percent more than the RM71.9 Bn as noted during the same duration in 2018.
A revamp of the existing incentive framework which consists of the Promotion of Investments Act 1986, Special Incentive Package, and incentives under the Income Tax Act 1967. A new and revamped framework is expected to be established by Jan. 1, 2021.
Special incentives for startups, unicorns
The government will provide special investment incentives packages of upto RM 1 Bn per annum, for five years in order to attract Fortune 500 companies and “global unicorns” in the high tech, manufacturing, creative, and economic sectors.
As a part of the strategy to attract targeted Fortune 500 companies in addition to global unicorns in high technology, manufacturing, creative, and new economic sectors, the government will provide about RM 1 Bn worth of customized packaged investment incentives annually over a period of five years.
As a part of the plan to enable local companies to enter the global market, the government will offer special investment incentives packages worth upto RM 1 Bn per annum for five years.
About RM 500 Mn have been allocated to Skim Jaminan Pinjaman Perniagaan which will go towards a facility that will be launched for women entrepreneurs.
RM 210 Mn have been earmarked to accelerate the implementation of new digital infrastructure, especially for public buildings such as schools, industrial parks.
A special economic zone will be created in Kedah which will be a 100-acre site known as Kota Perdana Special Border Economic Zone and for which about RM 50 Mn will be earmarked.
Boost for SMEs
The SME Bank will launch two new funds which include: RM 200 Mn dedicated towards women entrepreneurs and RM 300 Mn to help those SMEs that have the potential to become regional champions.
Also, about RM 10 Mn has been allocated to Entrepreneur Development Ministry so that it can focus on consultation services and awareness about the halal industry.
There will also be 50 percent matching grants amounting to RM 5,000 each to boost the operations of small and medium-sized enterprises. Moreover, RM 100 Mn will be allocated under the Chinese community small industries fund at an interest of four percent while the Indian community entrepreneurs will be get a loan of about RM 20 Mn under the Indian Entrepreneur Development Scheme.
In order to receive this incentive’s package, these companies should invest at least RM 5 Bn each in Malaysia. This investment will generate economic activities within the country that would support Small Medium Enterprises (SMEs) and are set to create 150,000 high quality jobs over a period of five years. Thus, strengthening the manufacturing and service ecosystems.
Push for digital
The Entrepreneur Development Ministry’s SME Corporation Malaysia (SME Corp) had announced in July 2019 that the ministry expects all SMEs in the country to embrace digitalisation within five years as compared to the current rate of adoption i.e. 32 percent.
Digitalization is nothing but the adoption of cloud-based services and point-of-sale system in order to store customer data. At present about 98.5 percent of the businesses in Malaysia are SMEs.
There’s a concept called Digital Social Responsibility that has been introduced by the government in order to bring business leaders to the same page when it comes to investing in the people to upskill future workers with digital skills, especially for those who are needy.
Private companies who take on the Digital Social Responsibility, will be given tax deductions.
In order to encourage Malaysians to move towards making digital payments and make the transition towards using e-wallets, the government will credit RM 30 into the e-wallet of every Malaysian who is 18 and above and earns less than RM 100,0000 a year.
About 14 one-stop digital improvement centres will be established in each state in order to enhance the access to financing and business capacity development.
Even though GST will be discontinued, the Digital Service Tax will come into effect on Jan 1. This tax will impact services such as Netflix and Spotify, digital advertising offered by Google, and also digital software and games distribution companies such as Steam.
As the economy prepares to become increaingly digital in terms of setting up modern infrastructure, a 10-year tax exemption has been included in the budget for electronics sector that enables the economy to move towards 5G and Industry 4.0.
Preparing for business
The budget included Bumiputera Entrepreneurship Development program which will get RM 445 Mn in order to provide entrepreneurs with training, assistance in setting up business offices and availing easier access to required funding.
Out of these RM 445 Mn, about RM 75 will be set aside for SMECorp that will help in spreading financial literacy and enhance marketing and packaging for the products of these SMEs. About RM 150 Mn will be set aside for entrepreneurship development and skills development programs while RM 50 Mn for entrepreneurship under the Economic Affairs Ministry.
Opportunities for women in the workforce
The Finance Minister also announced the Women@Work initiative that intends to create about 33,000 job opportunities per year for those women who have stopped working for a year or more and are between the ages of 30 and 50.
Women who return to work will get a salary incentive of RM 500 a month for two years. At the same time, the employer would be getting a monthly incentive of RM 300 during that same duration. Additionally, the income tax exemptions for women returning to work will be extended for another four years until 2023.
In order to empower more and more women to reenter the workforce, the government will be spending RM 30 Mn to build more daycare centers at the government premises such as hospitals and schools. In 2019 alone, about 66 daycare centres were set up.
Enabling social enterprises
The RM 10 Mn allocated, will boost social enterprises in Budget 2020 in order to help the development of more inclusive startups and in turn help disadvantaged communities, according to the Malaysian Global Innovation and Creativity Center. (MaGIC).
The main criteria to obtain Social Enterprise Accreditation are that the company must have a specific social or environmental goal, it should allocate a significant amount of resources towards that goal and must be financially sustainable.
State of inflation
The country’s GDP is expected to rise up to 4.8 percent in 2020 while inflation is likely to remain at two percent.
Personal taxable income
A new band for taxable income for personal income has been introduced wherein people with personal income in excess of RM 2 Mn will be taxed at 30 percent. Earlier, the rate of taxation was 28 percent. However, the new budget allows for an increase tax relief to upto RM 6,000 for medical expenses which would include fertility treatment as well.
Income tax refunds amounting to RM 13.6 Bn have been returned to 448,000 companies and 184,000 taxpayers.
A lower budget for 2020
Finance Minister Lim Guan Eng announced a RM 297 Bn allocation for Budget 2020, less than then RM 314.5 Bn allocated during the Budget 2019.
This amount includes an operational expenditure of RM 241 Bn and a development expenditure of RM 56 Bn.
As Malaysia gears up to face the rapid changes in the global landscape and still make its own mark, the allocations within the Budget 2020, if used wisely, are likely to take the country forward towards a better future of work.