Bernama, 10 September 2004
KUALA LUMPUR, Sept 11 (Bernama) -- Amidst a backdrop of relatively strong economic growth of 7.0 percent for 2004 and 6.0 percent for 2005, Prime Minister Datuk Seri Abdullah Ahmad Badawi on Friday unveiled an all-encompassing budget promising a better quality of life for Malaysians as well as benefiting foreign investors.
In presenting his maiden budget in Parliament here, he announced a four-pronged strategy which will lay the foundations for Malaysia to be a first-class nation, improve the government's financial management, increase and speed up high value-added activities, strengthen its pool of human capital and ensure the well-being of the people through a better living environment.
Among the beneficiaries are civil servants, who will receive a bonus of between one and one and a half months and improved housing allowances.
Additionally, teachers and school principals who excel, as well as police officers and mosque officials will receive additional benefits.
The Orang Asli, women and the disabled will also benefit from various provisions under the Budget.
To effect a strong culture of building maintenance, Abdullah, who is also Finance Minister, said the maintenance of government buildings would be outsourced. In the rural areas, they will be outsourced to small or Class F contractors.
As for business, Abdullah also announced major changes to the taxation system, incentives for agriculture the food processing sub-sector, and incentives for the capital market, especially stockbroking.
In promoting a healthy lifestyle, the government also announced heavier "sin" tax where the excise duty on cigarettes is to be raised to RM81 per 1,000 sticks from RM58 previously while the excise duty in liquor will be raised from between five sen and RM23.40 to between 10 sen and RM28 per litre.
To promote Malaysia as an international centre for arts and culture, Abdullah said arts and cultural performances by local artistes held in the federal territories of Kuala Lumpur, Labuan and Putrajaya would be given full exemption on entertainment duty provided such performances are approved by the Ministry of Culture, Arts and Heritage.
In line with this, he also called on state governments to adopt a similar course of action in terms of exemption on entertainment duty.
To help promote health tourism in the country, which brought in RM58.3 million, he also said immigration conditions for the entry of foreign medical specialists, therapists and patients would be relaxed.
To further promote the Information and Communications Technology (ICT) sector and for ICT to benefit every household, Abdullah said the tax rebate for individual taxpayers for the purchase of personal computers would be increased to RM500 from RM400.
Individual taxpayers would also benefit from the additional tax relief given for the purchase of books which would now be raised to RM700 from RM500 previously.
All in all, the government will spend RM117.4 billion for the 2005 Budget.
Abdullah said with revenue estimated at RM99.2 billion, the overall federal government deficit is expected to be reduced to 3.8 percent of the gross domestic product.
A total of RM89.1 billion or 75.9 percent will be for operating expenditure and RM28.3 billion for development expenditure.
A sum of RM22.2 billion will be for emoluments of civil servants, RM18.8 billion for services and supplies, RM46.3 billion for fixed payments and grants, RM1.4 billion for the purchase of office equipment and facilities and RM400 million for other expenditure.
Of the development expenditure, the largest will be for the economic sector at RM13.9 billion or 49.1 percent of the total and this will be for infrastructure, agriculture and industry.
A sum of RM7.6 billion or 26.9 percent is for the social sector, including education and training and health as well as housing.
The security sector will be allocated RM3 billion or 10.6 percent and general administration RM3.8 billion or 13.4 percent.
The prime minister also stressed on the transition of a higher value-added economy and effecting greater dynamism of the agriculture sector to reduce the food import bill, which stood at RM13.9 billion last year.
Saying that the 2005 Budget will stress on revamping the agriculture sector as the third engine of growth after manufacturing and services, he said the aim was to make Malaysia a competitive global producer of high quality and safe agricultural products that meet international standards.
Emphasis will be on adopting modern agricultural methods through the application of technology and research and development, including biotechnology, and developing Malaysia as a centre of processing, packaging and marketing of agricultural products for global markets.
The government will also develop skilled manpower by transforming Universiti Putra Malaysia into a centre of excellence for agriculture education; and encourage the private sector, especially government-linked companies, to be a catalyst in the commercialisation of the agriculture sector.
For this purpose, the government will establish a fund of RM300 million for seed capital.
With the global demand for halal food is projected to raise to RM2 trillion in 2005, Abdullah said the vast potential must be tapped to enable Malaysia to be one of the leading producers and exporters in the world.
In this respect, he said Malaysia's halal producers must continue to be of high quality and meet international standards.
"All companies are urged to obtain halal certificates as well as comply with international quality standards.
To help halal food producers, Abdullah said the government proposed to give a double deduction incentive on expenses incurred in meeting the standards to obtain halal certificates from the Malaysian Islamic Advancement Department (Jakim).
To encourage new investments and increase the use of modern state-of-the-art machinery and equipment, the government also proposed an investment tax allowance of 100 percent for five years for companies producing halal food.
A special fund for the development and promotion of halal products will also be established with an allocaton of RM10 million to finance studies in business planning, technology and market development as well as improving productivity and quality to achieve international certification and penetrating export markets.
To promote mechanisation and automation in the agriculture sector, including plantations, and reduce dependence on labour, Abdullah said the write-off period for capital expenditure on machinery and equipment used in the sector will be reduced to two years from between four and eight years at present.
As for boosting the local capital market, the prime minister said the government will now allow up to five major foreign stockbrokers to operate in Malaysia and their presence will strengthen the distribution network and increase liquidity.
The government will also allow up to five leading global fund managers to operate in the country to enhance fund management expertise and improve the quality of services. This will also help Malaysian instruments to be promoted globally.
Other measures include allowing 100 percent foreign ownership in venture capital companies to increase funding and expertise to promote investments in the ICT sector and allowing local stockbroking companies which had merged with at least one other stockbroking company to establish four additional branches or electronic access facilities in permitted activities.
In addition, there will be no limit on the number of foreign dealer representatives to enable stockbroking companies to strengthen their distribution network in overseas markets while the Employees Provident Fund will be allowed to increase the size of its funds placed with local fund management companies, including non-bank owned companies.
At present, the EPF's placement with local fund management companies is about RM6 billion and this will be doubled to RM12 billion within three years.
To help Malaysia become a regional financial centre, supranational agencies and multinationals like the World Bank, International Finance Corporation and Asian Development Bank and foreign multinationals will be allowed to issue ringgit-denominated bonds.
In further strengthening this initiative, tax exemption will be given on interest income derived by non-resident companies from ringgit-denominated Islamic securities and debentures, excluding convertible loan stocks, approved by the Securities Commission, and securities issued by the Malaysian government.
To further develop the Islamic financial system in the country, including takaful, Abdullah said the government is determined to make Malaysia the hub for Islamic financial services.
For a start, an international financial training institute will be established to produce experts and the government will issue Islamic Treasury bills to further strengthen the Islamic financial system as currently such bills are issued in the conventional form.
Government investment issues based on syariah principles will also be increased in 2005.
Abdullah also announced the establishment of a Real Estate Investment Trust to improve liquidity in the real estate sector and efforts will be made to convert illiquid assets into liquid assets to allow real estate companies to use income from the sale of existing properties for developing new property projects.
A more attractive tax treatment will be used to promote REIT, which will be exempted from tax on income distributed to its unit holders whereas the undistributed income will be taxed at 28 percent.
Income distributed to unit holders will be taxed at their respective tax rates but for non-resident unit holders, the tax payable at 28 percent, will be withheld by REIT.
Abdullah said the accumulated income that has been taxed and subsequently distributed is eligible for tax credit in the hands of unit holders.
To strengthen the manufacturing sector, a microelectronics centre will be established to increase the competitiveness of the semiconductor industry while the import duty on selected goods such as surgical gloves, carpets, glassware, semi-finished components for the wood-based industry. Raw materials for the apparel industry and herbicides will be reduced.
As for creating competitive entrepreneurs, especially bumiputera entrepreneurs, the Projek Usahawan Bumiputera Dalam Bidang Peruncitan (PROSPER) will be extended to include wholesaling to generate synergy with retailers.
In addition, bumiputera entrepreneurs, who can get long-term contracts of five years only in the defence industry, will also be considered for other industries involving technology transfer, including mechanical and engineering equipment industries as well as health services.
The move is to enable them to undertake R&D.
These contracts can be extended for another five years if the companies show excellent performance and have the potential to penetrate export markets.
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