Malaysia Budget 2020 Islamic economy highlights: Islamic Economic blueprint, halal exports, more for SMEs

Malaysia’s finance minister Lim Guan Eng tabled the government's budget for 2020 on October 11, setting expenditure at 297 billion ringgit ($70.95 billion) and projecting total revenue to rise to 244.5 billion ringgit ($58.4 billion), up 11.2 billion ringgit from 2019.

Fiscal deficit for 2020 is aimed at 3.2 per cent, a climbdown from the target of 3 per cent announced during the previous budget. The finance minister attributed this revision to “a heightened risk of a global economic slowdown and the unanticipated expenditure needed to rescue troubled institutions inherited from the previous administration”.

Despite these concerns, the government will not be re-introducing the six per cent goods and services tax (GST) it stopped in June last year, saying it will “respect the mandate” given to it by the people in the elections that swept it to power in May 2018.

Other top-liners include a new National Committee on Investment to attract more high value-added foreign direct investment (FDI), in the face of uncertainty caused by the trade war between the United States and China. A new incentive framework will be ready by January 1, 2021, said the finance minister.

1. ISLAMIC ECONOMIC BLUEPRINT

There were several announcements directly related to Islamic economy sectors, chief of which was that the Special Committee on Islamic Finance (JKKI) that was formed this year will formulate an Islamic Economic Blueprint. No other timelines for this was provided in the budget speech.

2. SUKUK

2a. Tax deductions on the cost of issuance and additional deductions on sukuk wakalah will be extended for five years until 2025.

Last year, the government extended the double tax deduction policy for additional expenditure incurred when issuing two types of sukuk—ijarah and wakalah—for three years starting in 2019 as the year of assessment.

3. ISLAMIC, SRI FUNDS

3a. There will be a tax exemption for funds companies managing Shariah-compliant and SRI funds.

3b. The tax deduction on the cost of issuing SRI Sukuk will be extended for another three years until 2023.

4. MORE FOR ISLAMIC AFFAIRS, JAKIM

4a. The allocation for Islamic affairs under the Prime Minister’s Department will be increased to 1.3 billion ringgit from 1.2 billion ringgit last year and 1.1 billion ringgit in 2018.

4b. The Department of Islamic Development Malaysia (JAKIM) will get 10 million ringgit to “develop a greater understanding of Maqasid Shariah via a series of advocacy programmes and deliberations”, said the finance minister.

5. HALAL, SUPPORT FOR SMEs, EXPORTS

Last year, the government said it wanted to make Malaysia a global halal hub by 2020 and allocated 100 million ringgit to upgrade the capability of SMEs in the halal industry via various programmes to increase exports.

5a. For 2020, it will allocate 10 million ringgit to the Ministry of Entrepreneur Development to focus on advocacy and awareness for halal certification, halal product development and providing platforms for local players to tap into the global halal market.

5b. The government will set up a 300 million ringgit fund to support Bumiputera (ethnic Malays) SMEs, with priority given to producers of halal products and manufacturers with high local content.

5c. Continued support will be given to export-oriented SMEs and SMEs investing in automation and digitalisation, with the government guarantees for their funding from financial institutions to be increased from 70 per cent to 80 per cent.

5d. A new allocation of 500 million ringgit in guarantee facilities will also be launched for women entrepreneurs.

The government guarantee schemes SJPP says on its website that details will be released early 2020.

5e. The ceiling per company for the Malaysia External Trade Development Corporation’s (MATRADE) market development grant will be increased from the current 200,000 ringgit to 300,000 ringgit yearly.

5f. The ceiling for the participation in each export fair will be revised upwards from 15,000 ringgit to 25,000 ringgit.

5g. The government will also cough up 50 million ringgit to encourage SMEs to engage in more export promotion activities.  

5h. For SMEs with paid-up capital of not more than 2.5 million ringgit and annual sales of not more than 50 million ringgit, their chargeable income subjected to 17 per cent will be increased to 600,000 ringgit from 500,000 ringgit.

6. MORE FOR FARMERS

6a. The Ministry of Agriculture will receive 4.9 billion ringgit in 2020, from 4.4 billion ringgit last year. There will be a “special focus” on enhancing the income of farmers.

6b. 150 million ringgit will be allocated to facilitate crop integration to help supplement farmers’ income such as through chili, pineapple, coconut, watermelon and bamboo.

6c. The government will allocate 43 million ringgit to the agriculture industry to develop new crop varieties with higher productivity and quality.

7. DIGITAL, DIGITALISATION

7a. 20 million ringgit will be given to the Malaysian Digital Economy Corporation (MDEC) to “grow local champions in creating digital content”. There will be a focus on e-games, animation and digital arts.

7b. MDEC will also get 10 million ringgit from the government to train micro-digital entrepreneurs and technologists to leverage e-marketplaces and social media platforms to sell their products. The finance minister said 100 micro-digital entrepreneurs, a majority of them women and youth, generated 23 million ringgit in revenues over six months.  

7c. 550 million ringgit will be allocated for Smart Automation matching grants for 1,000 manufacturing and 1,000 services companies to automate their business processes. This grant will be given on a matching basis up to 2 million ringgit per company.

7d. A 50 per cent matching grant up to 5,000 ringgit will be given per company for their digitalisation efforts, including for electronic point of sale systems, enterprise resource planning and electronic payroll system.  

7e. In a bid to push the use of e-wallets and e-payments, a one-time 30 ringgit “digital stimulus” will be handed out to Malaysians with annual income of under 100,000 ringgit. The finance minister cited figures from the central bank that said Malaysia stands to gain about 1 per cent in cost savings to GDP annually by switching fully to e-payments.  

7e. The Digital Services Tax will start from January 1, 2010. It will include services such as downloaded software, music, video or digital advertising.

8. FINTECH

The finance minister cited figures for funds raised via fintech platforms: more than 430 million ringgit raised as at June 2019, benefiting more than 1,200 SMEs.

8a. An additional 50 million ringgit will be allocated to My Co-Investment Fund (MyCIF) under the Securities Commission Malaysia to leverage equity crowdfunding and P2P platforms to help finance underserved SMEs.

9. VC

9a. Tax incentives for venture capital and angel investors will be extended until 2023.

10. LEISURE, MEDICAL TOURISM

Tax incentives will be extended to the arts and tourism sectors.

10a. Income tax exemption will be given to organisers of approved arts and cultural activities, and conferences organisers.

10b. New investments in international theme park projects will be given income tax exemption of 100 per cent of statutory income or investment tax allowance of 100 per cent to be set off against 70 per cent for five years.

10c. Companies sponsoring arts, cultural and heritage activities will be given tax deductions, from 700,000 ringgit to 1 million ringgit per year.

10d. The finance minister said medical tourism in Malaysia grew 17 per cent annually from 2015 to 2018, when it generated 1.5 billion ringgit  in revenue from 1.2 million healthcare travellers. 25 million ringgit will be given to the Malaysian Healthcare Tourism Council (MHTC) to strengthen Malaysia as the preferred destination for health tourism.

11. GREEN ECONOMY

11a. The Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE) incentives will be extended to 2023.

11b. A 70 per cent income tax exemption of up to 10 years will be given to companies undertaking solar leasing.

12. SUSTAINABLE DEVELOPMENT GOALS (SDGs)

12a. 10 million ringgit will be channelled to a joint government-UN Sustainable Development Goals fund to co-finance SDG initiatives in Malaysia.

12b. The government will also allocate 5 million ringgit to support the convening of Parliamentary Select Committee meetings and push for greater engagement by MPs with civil society, including to address the SDGs at the local level.

13. TACKLING CORRUPTION, STRENGTHENING GOVERNANCE

The finance minister said 115 initiatives were introduced under the National Anti-Corruption Plan (NACP) that was launched January 29, 2019. 15 per cent of these have been completed, one of which was for the disclosure of assets by all ministers and MPs.

13a. Resources to the Malaysian Anti-Corruption Commission (MACC) will be boosted by 100 personnel in 2020.

13b. MACC will also get 10 million ringgit to undertake Risk Assessment Tests at all ministries, departments and agencies.

13c. A new Malaysian Ombudsman will replace the Bureau of Public Complaints to enhance governance and delivery systems of the government.

(Compiled by Emmy Abdul Alim emmy.abdulalim@salaamgateway.com)

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