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With overall spending allocated on areas of the economy ranging from education, agricultural, tourism, social subsidies to business incentives, OCBC Bank Treasury Research’s Barnabas Gan dubbed this as the ‘mother of all budgets’, saying in a statement that it was “likely to be seen as expansionary for the Malaysian economy, both in promoting investment and trade, as well as from concrete fiscal spending plans in infrastructure.”
“Moreover, with the strong upgrade in gross domestic product (GDP) growth to 5.2 to 5.7 per cent in 2017, and fresh GDP estimate of five to 5.5 per cent in 2018, we believe that the better growth prospect will continue to aid in lifting both domestic and international confidence levels into 2018.”
Public Bank founder and chairman Tan Sri Dr Teh Hong Piow also held a positive view on the government’s firm and continuous commitment in strengthening its fiscal position, noting that Budget 2018 affirms this ongoing fiscal effort.
“Budget deficit is projected to reduce further to 2.8 per cent of GDP in 2018, supported by expectations of higher government revenue and prudent fiscal spending,” he said.
Tan went on to note that the implementation of new and ongoing infrastructure projects will continue to stimulate investments, which in turn generate capacity expansion in high growth sectors.
He believed that domestic investment will complement private consumption activities, contributing to a broad-based economic growth.
Meanwhile, CIMB Group’s group chief executive Tengku Dato’ Sri Zafrul Aziz opined that Budget 2018 reflects the government’s sensitivity towards Malaysians, through caring yet practical policies, particularly for the Bottom 40 (B40) and Middle 40 (M40) segments.
“Focus on bread-and-butter issues, like reducing income tax for the lower income group, increasing assistance for basic food and transportation items and providing more allocation for affordable homes will go a long way towards ensuring the Rakyat’s short- and long-term interests.
“The focus on building more than 385,000 affordable homes shows that the government is taking firm steps to address head-on the challenge of home ownership for the lower-income group,” Zafrul said.
He added that extending the 1Malaysia People’s Housing Programme’s (PR1MA) step-up financing scheme to private housing developers is also a laudable move towards facilitating home-ownership.
While most analysts were relatively or mildly positive on Budget 2018, the research arm of Public Investment Bank Bhd (PublicInvest Research) pointed out that it does lack the significant punch that a potentially market-changing measure may bring.
“It doesn’t have a relaxation to debt service ratios as clamored for by some, it doesn’t have the comeback of Developer Interest Bearing Schemes (even for first-time homebuyers) as clamored for by some, nor does it have additional infusion of life into equity markets like in recent years,” PublicInvest Research said.
“It does however contain measures that address the many pressing concerns of today, while also appropriately addressing the goals of tomorrow. Just as importantly, Budget 2018 does not contain any notable punitive measures that had marked previous editions, another feather to the feel-good factor.”
This sense of positivity, the research team reckoned, was also likely due to the fact that this is the government’s first expansionary budget in years, and all that being done while lowering its deficit to 2.8 per cent.
“All said, we think the market should trade with a positive bias in the near term as a result of Budget 2018 till the next key development, the 14th General Election,” it added.
As for the research arm of Hong Leong Investment Bank Bhd (HLIB Research), it noted that there is a wide range of measures that will benefit the broader economy in terms of lower personal income tax and incentives to upgrade industries. Selected sectors such as consumer, construction, healthcare, tourism and others also stand to gain from the various measures introduced in the latest budget.
“We are also relieved that no negative measure was announced (to recap, 2017 Budget contained announcement on spectrum fee which rocked the telco sector),” HLIB Research said.
Overall, Budget 2018 has outlined measures to invigorate investment, trade and industries as well as provisions to enhance small and medium enterprises and micro financing, accelerate exports, boost the tourism industry, strengthen the financial market and expand the rakyat’s income.
BizHive Weekly this week will feature insights on some of Budget 2018’s measures for SMEs and micro entrepreneurs along with IR 4.0 business and investment activities and the thriving digital economy in Malaysia.
Higher allocations for SMEs
Among the various initiatives set out in the latest budget, small and medium enterprises (SMEs) noticeably received a higher allocation of RM20 billion this time around, with Prime Minister and Finance Minister Datuk Seri Najib Razak stressing in his Budget 2018 speech that Malaysia will progress further through the inclusive participation of SMEs.
Deputy International Trade and Industry Minister Datuk Ahmad Maslan explained that the government placed great emphasis on the SME sector in Budget 2018 as it is one of the eight main pillars of economic growth and accounted for 98.5 per cent of all business entities in the country.
Aside from the total allocation amounting to RM20 billion which would cater to serveral criteria, including access to markets, financing for training, human capital, technology and automation, as well as working capital, Maslan said that there are further provisions for SMEs which are provided through allocations to other ministries related to SMEs, for which 16 ministries are involved.
Some of the Budget 2018 highlights for the SME sector included an allocation of a total of RM7 billion under the Skim Jaminan Pembiayaan Perniagaan (SJPP). Of this, RM5 billion is for working capital and RM2 billion with 70 per cent has been guaranteed by the government for the services sector, including Industrial Revolution (IR 4.0). The budget also revealed that an unprecedented amount of RM1 billion is provided as loans to companies with 70 per cent guaranteed by the government, adding that 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 Shariah-compliant SME Financing Scheme, increasing the fund size to RM2.5 billion. A subsidy of two per cent 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 the SME Corp; and
“About RM82 million is allocated for the development of halal industries and products under various agencies,” Najib said on enhancing SMEs in his speech.
On the government allocating RM200 million for training programmes, grants and soft loans for SMEs, Microsoft Malaysia commended their progressive approach in implementing these programs which would enhance the advancement of SMEs.
“SMEs account for the majority of business establishments in Malaysia. As the backbone of our economy, it is important that we create an enabling environment, allowing SMEs to harness the transformational opportunities offered by technology and training.
“The budgetary allocations will provide the necessary innovation and advance solutions for SMEs to improve their competitiveness within the industry,” managing director K Raman said.
Malacca Securities Sdn Bhd also agreed on that point, noting that the increased allocation to the SMEs will benefit the broader economy given the large number of people employed in the sector.
The research firm went on to note that the renewed emphasis on the SME sector “will be a boon for not only employment within the sector, but also for many other supporting industries and services.”
Meanwhile, EY Malaysia Partner and Tax Leader Amarjeet Singh highlighted that the budget’s measures promote a conducive ecosystem for the private sector and SMEs through easier access to funding, support for talent development, creation of regulatory sandboxes for innovation and reach to global markets such as the Digital Free Trade Zone (DFTZ).
“The fact that these measures extend even to micro entrepreneurs demonstrates the depth of the initiatives in place,” he said.
Not forgetting micro-entrepreneurs
The government had not forgetten about micro entrepreneurs, providing the highest allocation of half a billion ringgit to Tabung Ekonomi Kumpulan Usahawan Niaga (TEKUN).
“In addition, to appreciate Amanah Ikhtiar Malaysia’s (AIM) borrowers of which the majority are women and good paymasters, the Government will allocate an additional RM200 million to the fund.
“With this, total fund size will be RM2.7 billion, benefitting nearly 400,000 borrowers,” Najib said.
A sum of RM80 million has also been allocated under the Rural Economic Financing Scheme (SPED) through Bank Rakyat and SME Bank to provide financing facilities to rural Bumiputera entrepreneurs.
The Malaysian Institute of Accountants (MIA) was one of many institutions welcoming Budget 2018’s numerous programmes and incentives focused on the development of micro entrepreneurs.
“All these programmes and additional funds allocated to the development of micro entrepreneurs are expected to boost the further development and growth of entrepreneurship going forward,” said MIA chief executive officer Dr Nurmazilah Dato’ Mahzan in a statement.
However, Nurmazilah explained that micro enterprises generally lack in-house expertise and suffer from human resource deficiency.
“Various studies found that small business enterprises’ growth is influenced by management abilities such as finance, marketing, human resource, and operations management.
“Financial mismanagement as one of the key contributors to small enterprises’ failure, can impact enterprise performance,” she said.
As such, Nurmazilah stressed the importance of putting start-ups and business advisors in touch with financial management at an early stage to bridge the skill and knowledge gap, a move which would help entrepreneurs achieve their dreams.
“Accountants can play an important role as trusted business partners by providing financial management and relevant business support,” she added.
Industrial Revolution 4.0 and the digital economy
Under the sixth thrust, Budget 2018 also introduced various allocations and initiatives to fortify the IR 4.0 and the digital economy in Malaysia.
“In line with the emerging IR 4.0 and the era of digital economy, the government will implement the Malaysia Digital Policy,” Najib said.
“As such, in order to support the IR 4.0 business and investment activities, the government will provide a matching grant worth RM245 million under the Domestic Investment Strategic Fund to upgrade the Smart Manufacturing facilities.
“Furthermore, futurise centre in Cyberjaya will be strengthened as a one-stop centre for corporate companies and universities to develop prototype products and elevate innovation.”
KPMG Tax Services Sdn Bhd’s executive director Regina Lau opined that the matching grant of RM245 million under the Domestic Strategic Fund aimed at helping businesses to upgrade smart manufacturing facilities is a good start to push businesses towards innovation, although the allocation is rather small for this purpose.
“In addition, it remains to be seen how businesses can avail themselves of the grant. SMEs would be in greater need of such grants and hence, should be given priority in the disbursement thereof. It may also be more equitable if each state were to be given an allocation of the grant so that all states have an equal chance of moving their SMEs towards the digital era,” Lau said.
Tax incentives will also be provided by the government in the form of an extension of the incentive period for Accelerated Capital Allowance of 200 per cent on automation equipment from year of assessment 2018 to year of assessment 2020.
The incentive period for Accelerated Capital Allowance of 200 per cent for manufacturing and manufacturing-related services sectors will also be extended.
Additionally, Najib announced that there will be capital allowance for ICT equipment, which includes spending on computer software development. This is claimable for the period of four years beginning year of assessment 2018 to 2020 and is also applicable for SMEs.
Microsoft Malaysia opined that the budget’s focus on the upgrade of ICT equipment and communications systems would be crucial for a strong digital infrastructure for its businesses.
“Additionally, rebate on purchase of ICT equipment and software development will lower the barrier to entry for adoption of digital technology among SMEs and corporates, especially as we continue to advance digital workforce as a national agenda,” it said.
Lau noted that while spendings on ICT equipment including software development and customisation of software packages are high, they are necessary outlays for businesses on the road to digitalisation.
However, she pointed out that in order for these capital allowances to be really beneficial to businesses, it is hoped that the tax authorities will take a more reasonable and liberal view on what constitutes qualifying expenditure for the claim.
“In view of the proposed widened scope of the qualifying expenditure, the relevant tax public ruling should be amended after due consultation with stakeholders to ensure that the purpose of the Budget proposal is met,” she said.
Of particular interest in this ‘sixth thrust’ category was the regulatory sandbox announcement, where the government will create a conducive ecosystem to gain benefits from innovation, particularly ideas from local start-ups.
“The government will expand regulatory sandbox approach to facilitate companies to test their new innovative ideas and business model which will be implemented by all related regulators,” Najib said.
On that note, Lau said that while technology is key to digitalisation, the economy also needs people with the right skill sets in the era.
She explained that innovation plays an important part in improving business processes in the digital economy and building innovation capacity is therefore paramount.
“However, the Budget does seem to have specific measures on building such capacity. The proposal to expand regulatory sandbox approach for a conducive ecosystem to gain from innovation is at best vague and provides no details on how this will be achieved.”
On the DFTZ, Najib highlighted that Malaysia will be the first in the world outside China to establish a DFTZ which comprises e-Fulfilment Hub, Satellite Services Hub and e-Service Platform to stimulate growth in electronic trade.
“DFTZ will transform KLIA as the regional gateway,” he said.
He went on to highlight that the first phase of DFTZ aims for 1,500 SMEs to participate in digital economy and is expected to attract RM700 million worth of investment and create 2,500 job opportunities.
“For this, the government provides a sum of RM83.5 million to construct infrastructure for the first phase of DFTZ in Aeropolis, KLIA and increases the de minimis or minimum value for imports from RM500 to RM800 to establish Malaysia as the regional e-commerce hub.”
Lau agreed on the proposed setting up of the Digital Free Trade Zone in KLIA as it will provide an additional thrust for Malaysia’s journey towards a digital economy.
“As this should be the first in the world outside China, learning from China instead of re-inventing the wheel will help to cut short our journey and save costs in our quest,” she said.
“After all, in the current world of unpredictable quick changes, the faster we reach our goal, the more we stand to gain.”
Meanwhile, tech experts had generally favourable views on the government’s initiatives and allocations for the digital economy under Budget 2018.
Trend Micro, for one, welcomed the announcement of allocations and amendments to encourage the digital economy under Budget 2018.
According to managing director Goh Chee Hoh, these initiatives underline how Malaysia remains on the right track, and taking another step forward towards becoming a fully-developed digital economy.
“The measures to strengthen Malaysia’s commitment to the DFTZ will further invigorate the country’s eCommerce industry and enable local businesses to capitalize on the opportunities from the internet economy and cross-border activities.
“This is also in line with Trend Micro’s continuous investment of resources and efforts in supporting this digital transformation growth in Malaysia,” Goh said.
CA Technologies also approved of the proposed measures that translate to greater opportunities for Malaysian businesses and organisations to help evolve and navigate the digital economy.
Vice president for ASEAN and Greater China, Nick Lim, noted that the digital economy has raised customers’ expectations and brought disruption to every industry.
“Businesses today are realising the need to deliver exceptional experience by responding to their customers’ needs with greater agility and speed,” Lim observed.
“We believe that the targeted business and digital incentives under the Budget 2018 will further accelerate the economic growth for Malaysia and drive the nation forward, in line with the “Transformasi Nasional”, or TN50 National Transformation framework which envisions the country as a fully developed nation status by 2050.”