Klareco Insights – Malaysia Budget 2022
As anticipated, the just announced Malaysia 2022 Budget is another bumper one for the country following the past couple of years which has seen its economy severely impacted by Covid 19. The Budget, which has a total allocation of RM332.1bil – the largest-ever for the country – was tabled by Malaysia Finance Minister Tengku Datuk Seri Zafrul Aziz in Parliament on Friday and is built on three key pillars: Strengthening Recovery, Building Resilience and Driving Reforms.
As Malaysia begins to emerge from the pandemic with a gradual opening of the economy, Budget 2022 will lay the groundwork of rebuilding Malaysia’s economy. While largely focused on extending direct aid to people and industries in need, broad emphasis has also been placed on rebuilding the resilience and capacity of the nation’s healthcare system, enhancing digital and technological infrastructure, particularly within Education, facilitating transition to high-productivity industrial sectors based on automation and advanced skills, whilst ensuring quality job creation.
Looking beyond Budget 2022, despite the urgent need of resolving revenue shortfall, there are no plans just yet to reintroduce the Goods and Services Tax. Instead, the Government has proposed several stop-gap measures, such as an income tax for Malaysia residents on income derived abroad but received locally, online sales tax on goods from abroad sent via air courier, service tax on goods sent by delivery service providers including ecommerce platforms (excluding F&B).
Most significantly, The Government has proposed a one-off special windfall tax (up to 33 percent) to companies that generate extraordinary revenue for the year of assessment 2022. This windfall tax eases the need for immediate reintroduction of the GST and helps to ensure the Government is able to deliver on its committed financial packages.
Improving labour market conditions and reducing unemployment
To reduce the unemployment rate in Malaysia which stood at 4.6% in August, the Government is focused on job creation opportunities and short term placements in GLCs and the private sector.
A slew of incentives will be offered including wage subsidies for up to a year, when hiring the unemployed (particularly women), focused groups including the physically disabled, Orang Asli, former prison inmates, and single mothers, and when hiring locals in place of foreign workers.
Continuous efforts to upskill and reskill the workforce can also be seen, be it through incentives or through the strengthening of the Technical and Vocational Education and Training (TVET) sector to meet the needs of the industrial workforce.
- All of this bodes well for the industrial and manufacturing sector in Malaysia as there will be an adequate skilled workforce to meet the heightened demands of the future. Businesses looking to expand their workforce can take advantage of the various incentives being offered.
Housing for all
The majority of points covered in Budget 2022 for this sector focused on making home ownership and financing more accessible, with a focus on ensuring adequate, quality and affordable housing.
While approximately RM1.5 billion has been allocated for continuing low-cost housing projects, the standout here is the RM2 billion allocation for a housing credit guarantee scheme to help those without a stable income such as gig economy workers, small business owners and farmers to purchase homes. Real property gains tax has also been abolished on house sales from the sixth year onwards, applicable to Malaysians, permanent residents and companies.
- It is hoped this will not only rejuvenate the property industry, but also make it more diverse and dynamic by spurring the sub-sale market which will indirectly invigorate the supply chain.
Attracting international investors
To ensure that Malaysia continues to be an attractive investment destination, initiatives are being planned to drive strategic investments in key sectors and to strengthen growth drivers. Of note is a special strategic investment fund to attract strategic foreign investments by MNCs especially those that complement industry value chains, drive knowledge-based jobs creation, and develop opportunities for local SMEs.
A sizable sum has also been allocated to explore high impact investments and new export markets, as well as in training workers to support industrial clusters and upskill workers in areas such as oil and gas welding, industrial automation and mechatronics. Technological transformation will be incentivised for SMEs and mid-stage companies in the manufacturing and services sectors, while Smart Automation matching grants will help to automate their business and increase productivity.
- Local SMEs stand to gain not just through recovery aid, but also move from being less reliant on unskilled labour and instead be more productive through automation.
Growing the Startup Ecosystem
To ensure Malaysia maintains its entrepreneurialism and competitiveness, allocation has been earmarked for R&D activities in the areas of scientific and technology innovations, and also go towards implementing an Industrial Revolution 4.0 innovation hub which will function as an innovation ecosystem one-stop centre with the development of new emerging technology clusters such as drones, robotics and autonomous vehicles.
- With added emphasis on the startup sector, over 12,500 entrepreneurs and startup founders will gain exposure and support from the planned innovation ecosystem, as well as benefit economically from recovery efforts to be carried out under the Malaysia Digital Economy Blueprint.
Accelerating Digital Connectivity and ePayment adoption
In order to accelerate and enhance digital connectivity across the country, the Government has allocation for the expansion of broadband coverage in industrial areas and schools, particularly those in rural areas, and at low-cost housing projects (PPRs).
The SME Digitalisation Grant Scheme will also be extended and expanded in 2022; with funding set aside just for rural Bumiputera micro entrepreneurs.
The planned eStart cashless transaction scheme will see a one-off cash deposit into e-wallets of those aged 18-20; this will empower some 2 million youths to adopt cashless payments. Around 600,000 undergraduates from low-income families will also get one tablet each, ensuring continued access to learning. Based on the experience during Covid 19 with many people and sectors moving online, digitalisation is crucial to ensure everyone is able to keep up in this new age of technology.
- The planned 5G rollout this year will open the doors to a new technological landscape for both people and businesses. For many industries and sectors, the road ahead in the nation’s digitalisation roadmap is ripe for exploration. For corporates, there is ample opportunity for CSR initiatives in the digital space in line with the Government agenda.
Strong ESG Agenda
The Budget 2022 reaffirms the nation’s strong commitment towards driving the environmental, social and governance (ESG) agenda. The government reiterated its goal to achieve carbon neutrality by 2050 and announced a voluntary carbon market led by Bursa Malaysia to enable carbon credit trading between green asset owners and other entities transitioning towards low-carbon practices.
Bank Negara Malaysia (Malaysia Central Bank) will allocate funds towards assisting SMEs adopt sustainable, low-carbon practices. Meanwhile, the Government plans to issue ringgit-denominated sustainable sukuk of up to RM10 billion, to finance eligible social or nature-friendly projects.
To support the development of the local EV industry which has the potential to minimise pollution, the Government announced full exemptions on import, excise duties and sales tax for electronic vehicles (EV) as well as road tax exemptions.
- With the nation’s strong ESG agenda, it is timely for corporations to either explore or solidify their own efforts in this area in tandem with the country’s progress.
Supporting Targeted Communities
- Empowering the Bumiputera sector – to continue prioritising the Bumiputera agenda, a total of RM11.4 billion has been provided to implement various programmes under the umbrella of Bumiputera development. These range from educational loans to programmes for capacity building and supporting young Bumiputera contractors.
- Strong focus on women’s empowerment – one of the highlight of the Budget is the women’s empowerment agenda. Initiatives include wage subsidies for women returning to the workforce, a minimum one-woman board member requirement for public listed companies, as well as grants to encourage women’s participation in the economic sector and to support women entrepreneurs particularly those impacted by Covid 19.
- Developing rural areas – plenty of emphasis has been given to people living in rural areas. with substantial funds allocated for water and electricity supply projects in rural areas as well as to develop road infrastructure in the villages. Subsidies will also be provided to offset the cost of transportation of essentials and basic goods to rural areas.
- Enabling the disabled – The welfare of the OKU community is not forsaken, as the Government plans to upgrade Government buildings infrastructure to be OKU friendly. Funds will also go to implement training and mentoring programmes for this segment.
Recovery for Targeted Sectors
i. Travel and Tourism
The travel and tourism industry have been allocated a substantial sum, in the form of targeted wage subsidies for tourism industry employees, specific financing and incentives including assistance for tour operators, maintenance of tourism infrastructure, grant matching for facility repair and renovation purposes, as well as individual income tax rebate to spur domestic tourism.
Another new initiative of note is the Malaysia Digital Nomad Program to build a national ecosystem and community of digital nomads as a catalyst for tourism recovery. The Government will intensify efforts to revitalize the international health tourism industry to strengthen Malaysia’s position as a preferred health tourism destination with an allocation to the Malaysia Healthcare Travel Council.
- The digital nomad program offers plenty of growth opportunity for shared accommodation platforms, short term rental providers and co-working spaces While it is good news for healthcare providers around the country that frequently cater to medical tourists pre-Covid 19.
ii. Arts and Creative Industry
National agencies such as Finas, Cendana and MyCreative Ventures will intensify efforts to revive the creative industry’s activities. The Government will also implement a loan matching scheme to bring more local animation to the international stage while matching grants and tax exemptions will be given to companies that organise programmes related to arts and culture.
iii. Retail Industry
Support measures to ease the financial burdens of retailers and SMEs adversely affected by the pandemic such as the wage subsidy program, loan moratoriums, tax relief for rental discounts on business premises and financing programs for micro, small and medium enterprise (MSMEs) were either newly announced or extended into 2022.
Special focus will be given to help local social enterprises, halal, handicraft, agricultural and entrepreneurial enterprises to digitalize. Micro SME entrepreneurs are eligible for benefits when executing e-commerce implementation activities, training in marketing and digital payments. To boost the production and purchase of local products, the Government is will implement initiatives to support local handicrafts and natural resources with an allocation of RM33 million.
- This is particularly good news for SMEs in the retail space who are keen to embark on a digitalisation program to keep up with their counterparts as well local product manufacturers.
Health is Wealth
To encourage an active lifestyle post-pandemic, allocation has been made to a variety of national health programs, the upgrading of sporting facilities nationwide, developing the OKU sports industry and national e-sports championships including a drone sports centre-of-excellence. To encourage competitiveness (noting Malaysia has done particularly well in this sphere), there will be reliefs on e-sports prize money.
Mental health and wellness also come to the fore with the allocation for mental health programmes and support. There are also plans to expand the scope of tax relief to include cost of medical expenses/consultations with psychiatrists, clinical psychologists, and licensed counsellors.
Excuse duties will be imposed on chocolate/cocoa, malt, coffee, and tea-based premix drinks containing sugar, as well as nicotine-based gel or liquid products used for e-cigarettes and vaping.
- Sectors such as e-sports, sports equipment, sports facilities and health and wellness-related services and providers stand to benefit from this new area of Government focus.
In short, the Budget 2022 has been drawn up to benefit all segments of society in line with the ‘Malaysian Family’ concept which ensures that no one will be left behind in the country’s recovery agenda after experiencing difficulties brought by the Covid-19 pandemic. The nation’s strong emphasis on the digital economy is timely and a cause for celebration.
As Malaysia embarks on its journey to rebuild the economy, the Government’s concerted efforts and reforms will be crucial in addressing any socioeconomic disparities and creating a more sustainable, inclusive and high-value society, as well as safeguard the nation from the next catastrophe.