Abdullah unveils business-friendly budget despite tough conditions

KUALA LUMPUR: The government continued its business-friendly stance in the 2009 budget, offering perks for small and medium scale enterprises, tax relief to enhance private investments, incentives to attract foreign direct investments as well as provide more funds to boost regional economic corridors despite tough economic conditions.

Incentives were also given to encourage more foreign listings on Bursa Malaysia and for the issuance of non-ringgit sukuks or Islamic bonds denominated in foreign currencies, measures which will help propel Malaysia as a global financial centre.

Tabling the 2009 budget at the Dewan Rakyat yesterday, Prime Minister Datuk Seri Abdullah Ahmad Badawi announced that import duties on most goods were also abolished, reduced or exempted as part of efforts to liberalise trade and reduce the cost of doing business in Malaysia. Abdullah, who is also Finance Minister, said that all assets in the form of plant and machinery acquired in 2009 and 2010 would be given Accelerated Capital Allowance (ACA) which can be claimed within one year for small and medium scale enterprises (SMEs).

Besides this, SMEs would be allowed to claim full capital allowance on all small value assets within one year, said Abdullah. To further promote private sector investment, the tax treatment on group relief will be enhanced by allowing losses for the purpose of offsetting be increased to 70 per cent from 50 per cent.

Abdullah, who projected the economy will expand by 5.4 per cent next year from an anticipated 5.7 per cent this year, said the government has allocated an increased budget of 5.1 per cent to RM207.9 billion for 2009, of which RM154.2 billion is for operating expenditure and RM53.7 billion for development expenditure.

In continuing efforts to provide a more conducive environment for private investment, the ACA on expenses incurred on ICT equipment which is currently claimed over two years be accelerated to one year. However, cigarettes and cigars will be more expensive effective immediately, due to higher excise duties as the government continues to promote a healthy lifestyle, he said.

The government would also extend the double deduction to employers for sponsoring their employees to pursue post graduate studies in areas such as Information and Communications Technology (ICT), electronic and life sciences. He also said the exemption on withholding tax would be given to non-resident experts providing technical training and services in these areas. An Advanced Pricing Arrangement mechanism will also be introduced to enhance certainty on pricing issues for inter-company trades within a group effective 2009.

He said this mechanism is widely practiced in developed countries and has succeeded in resolving issues related to transfer pricing. Turning to efforts to grow further the nation’s international trade, he said the import prohibition on cranes used at ports will be abolished while the import duty will be reduced to five per cent from 20 per cent.

He also said a new RM2 billion fund will be set up to finance the purchase of ships and upgrade shipyards. Venture capital companies which invest 30 percent of their funds in start-up, early stage financing or seed capital, would be eligible for a five-year tax exemption effective for applications received by the Securities Commission from August 30 this year to December 31, 2013. The government has also allocated an additional RM300 million under the Strategic Investment Fund to further strengthen private investment in Iskandar Malaysia.

The fund will finance the implementation of private-public partnership in public transportation, healthcare services, education and creative industries. Abdullah also said hotel operators in Sabah and Sarawak undertaking new investments in four and five-star hotels in the two states will be given pioneer status or investment tax allowance incentives effective for applications received by the Malaysian Industrial Development Authority (MIDA) from August 30 this year to December 31, 2013.

To encourage the greater use of renewable energy and energy efficiency, the government will be giving 100 per cent exemption on import duties and 50 per cent reduction in excise duties for hybrid completely-built-up cars with engine capacity below 2,000 CC be given to franchise importers. This exemption is given for a period of two years to prepare for the local assembly of such cars.

To widen the usage of Energy Efficiency (EE) equipment, the exemption of import duty and sales tax would be given on EE equipment such as high efficiency motors and insulation materials to importers including authorised agents approved by the Energy Commission. Sales tax exemption will also be given for the purchase of locally manufactured EE consumer goods such as refrigerators, air conditioners, lightings, fans and televisions.

These incentives are effective for applications received by the Ministry of Finance from August 30, 2008 until December 31, 2010. As for efforts to create a more vibrant capital market, tax exemption would be given on fees received by domestic intermediaries, which successfully list foreign companies and foreign investment products on Bursa Malaysia.

“This measure will also enable domestic investors to acquire shares of foreign companies listed on the local exchange,” he said. Tax exemption would also be given for a period of three years for fees and profits earned by institutions undertaking activities related to the arranging, underwriting, distributing and trading of non-Ringgit sukuk issued in Malaysia and distributed outside Malaysia. Besides this, the current tax rate on dividends received by foreign institutional investors from Real Estate Investment Trusts (REIT) will be reduced to 10 per cent from 20 per cent.

“Recognising that REITs is an attractive investment product for individuals as well, the tax rate will be reduced to 10 per cent from 15 per cent,” he said. There will also be more opportunities for contractors following Abdullah’s announcement that RM35 billion will be spent in the next five years to improve the efficiency of public transportation by enhancing rail services, building new tracks, increasing the number of buses as well as provide better infrastructure facilities.

To reduce the cost of home ownership, the 50 per cent stamp duty exemption would be extended to loan agreements for purchase of medium cost houses of up to RM250,000, which now only is given on the instrument of transfer. The fund size for the Housing Credit Guarantee Scheme will be doubled to RM100 million from RM50 million, a move which will further assist those without fixed income to own affordable houses.

In efforts to enhance the acceptance of palm oil globally, he said the government will allocate RM50 million to provide a Roundtable for Sustainable Palm Oil (RSPO) certification to support community programmes such as upgrading of schools in plantations as well as implementing conservation programmes such as enhancing biodiversity in plantations.

Abdullah said the tax on interest income received by individuals from monies deposited in all institutions approved to take deposits be fully exempted effective tomorrow to increase the disposable income.

To encourage employers to provide more benefits to their employees and help to reduce cost of living, employees would be given tax exemption on allowances, benefits in kind and perquisites from employers in areas such as parking fees, petrol allowance, telephone bills, subsidies on interest on loans totalling up to RM300,000 for housing, passenger vehicles and education.

Abdullah said that the recruitment cost incurred before the commencement of operations be allowed as deduction for purposes of tax computation. Such cost includes expenses incurred in participation in job fairs, payment to employment agencies and head hunters. Professional associations would be incorporated in the definition of trade associations effective 2009 in efforts to enhance the transparency in tax treatment of professional associations, he said.

Bonus and directors’ fees would be taxed in the year such incomes are received effective 2009 in line with the self assessment system as against the current norm where they receive bonus and fees in the following year.

As a continuous measure to liberalise trade, he said the import duty of between 2-25 per cent on food products such as ground nuts, sardines and fruit juices will be abolished, whereas the import duty of between 5-50 per cent on electric goods and components such as voice recorders, generators and washing machine components will be abolished. – Bernama

Import duties on numerous other products, such as fertilizers, pesticides, food products such as biscuits, vermicelli and sweet corns, electrical goods, petrochemical products and polymer industrial goods, textiles such as carpets and glassware have also been reduced or abolished. – Bernama