Star Online, 10 September 2004
THE 2005 BUDGET SPEECH BY YAB DATO’ SERI ABDULLAH BIN HJ. AHMAD BADAWI PRIME MINISTER AND MINISTER OF FINANCE
INTRODUCING THE SUPPLY BILL (2005) IN THE DEWAN RAKYAT 10 SEPTEMBER 2004
BUILDING ON PAST ACHIEVEMENTS TOWARDS GREATER SUCCESS
Mr. Speaker Sir,
1. I beg to move the Bill intituled “An Act to apply a sum from the Consolidated Fund for the service of the year 2005 and to appropriate that sum for the service of that year” be read a second time.
In the name of Allah, the most gracious and the most merciful.
2. Praise be to Allah, for enabling me to present the National Budget for 2005 in this Honourable House. This is my first Budget as the Prime Minister and Minister of Finance. I wish to record my appreciation to Yang Amat Berbahagia Tun Dr. Mahathir bin Mohamad, for his invaluable contributions towards the nation’s remarkable development. My objective is to continue building on past achievements towards attaining greater success.
3. The year 2005 marks the transition between the final year of the Eighth Malaysia Plan and setting the stage for the Ninth Malaysia Plan. The economy continues to grow from strength to strength. The Government is committed to fulfil all promises made in the Barisan Nasional Manifesto.
4. The Government will continue to promote growth and provide an enabling environment of opportunities in various economic activities for all rakyat. I am determined to ensure that every rakyat will be able to live in peace and harmony, regardless of race, religion and status. This is my aspiration, my objective and my pledge to you.
ECONOMY CONTINUES TO BE STRONG GOVERNMENT AND PRIVATE SECTOR FIRMLY UNITED
Mr. Speaker Sir,
5. The recovery of the world economy continues to strengthen. Global growth is estimated at 4.6 percent with trade expanding by 6.8 percent in 2004. These encouraging developments are driven by better economic performance of developed countries as well as the robust growth of China and India.
6. The favourable external environment is among the factors that has propelled Malaysia’s economic growth to 7.6 percent in the first quarter of 2004 and 8 percent in the second quarter, which is among the highest in the region. This growth momentum is expected to continue in 2004 with the Gross Domestic Product (GDP) estimated to grow at 7 percent, higher than earlier projected.
7. Private investment rebounded by an estimated 14.8 percent in 2004, a turnaround from a negative growth of 19.9 percent in 2001. Exports also grew significantly, fuelled mainly by the global demand for electrical and electronic goods, chemical and chemical products, optics as well as scientific equipment. The growth in private consumption continues to be robust, growing at 9.3 percent, reflecting the private sector’s capability to once again become the engine of economic growth. Financing for development is not a constraint, given our high national savings rate at 34.3 percent of GDP.
8. Growth in the domestic economy has been broad based led by the manufacturing sector at 10.5 percent, services 6 percent, mining 5 percent and agriculture 2.8 percent. The performance of the banking system improved, with loan disbursements increasing by 12.4 percent to RM276 billion in the first seven months of 2004. Non-performing loans declined to 6.2 percent in July 2004 compared to 6.7 percent in July 2003, reflecting the success of financial and corporate sector restructuring efforts.
9. Our external trade has continued to register surpluses for 81 consecutive months since November 1997. The level of foreign reserves is at its highest level at RM207.2 billion or US$54.5 billion as at 30 August 2004, sufficient to finance 7.2 months of retained imports. The current account in the balance of payment continues to strengthen, exceeding 14.1 percent of Gross National Product. The country continues to enjoy full employment with low inflation. The unemployment rate is at 3.5 percent while the Consumer Price Index increased by only one percent in the first half of 2004.
Mr. Speaker Sir,
10. In order to achieve greater success, there must be a transformation in the way we do things and we need to refocus on key strategic areas. The outdated work systems and legislation need to be revamped and a positive culture inculcated to improve competitiveness and position Malaysia to be at par with the developed countries.
11. The Government is fully cognisant of the challenges ahead, in particular arising from the uncertainties and turbulence in the external environment, which will constantly test our ability to achieve our development goals. Hence, developing human capital, increasing productivity, enhancing research and development (R&D) capabilities and identifying new sources of growth are indeed crucial. Ensuring a dynamic private sector is another major challenge in our efforts to increase the nation’s resilience. The Government will focus on promoting growth and at the same time gradually reduce the fiscal deficit. This will ensure continuity and sustainability of growth.
BUDGET STRATEGY 2005
Mr. Speaker Sir,
12. Budget 2005 will focus on the following four strategies:
First: Enhancing the effectiveness of Government financial management, efficiency of the delivery system and competitiveness;
Second: Accelerating the shift towards a higher value-added economy;
Third: Developing human capital as a catalyst of growth; and
Fourth: Ensuring the well-being of the rakyat through improving their quality of life.
BUDGET ALLOCATION 2005
Mr. Speaker Sir,
13. To implement the above strategies, the Government proposes an amount of RM117.4 billion be appropriated in 2005 Budget. With revenue estimated at RM99.2 billion, the overall Federal Government deficit is expected to be reduced to 3.8 percent of GDP. Of this, RM89.1 billion or 75.9 percent is for Operating Expenditure and RM28.3 billion for Development Expenditure.
14. Under Operating Expenditure, an amount of RM22.2 billion is allocated for Emoluments, RM18.8 billion for Services and Supplies, RM46.3 billion for Fixed Payments and Grants, RM1.4 billion for purchase of office equipment and facilities as well as RM400 million for other expenditures.
15. The largest development allocation of 49.1 percent or RM13.9 billion is for the economic sector to meet the requirements 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 is allocated RM3 billion or 10.6 percent and general administration RM3.8 billion or 13.4 percent.
FIRST STRATEGY: ENHANCING THE EFFECTIVENESS OF GOVERNMENT FINANCIAL MANAGEMENT, EFFICIENCY OF THE DELIVERY SYSTEM AND COMPETITIVENESS
Mr. Speaker Sir,
16. Financial management which is prudent, flexible, efficient and accountable is a pre-requisite towards ensuring a strong public financial position. In this regard, the Government has successfully implemented consolidation measures, which have contributed to a significant reduction in its fiscal deficit from 5.3 percent in 2003 to 4.5 percent of GDP this year and 3.8 percent in 2005.
17. The effectiveness of financial management will be enhanced to strengthen further the Government’s financial position. Several major measures will be undertaken, including restructuring the tax system to be more efficient and ensuring that the management of expenditure is cost effective.
Review of the Taxation System
18. The Government will continue to ensure the taxation system is more efficient, equitable and business friendly, as well as capable of generating a stable source of revenue. Towards this end, the Government proposes to establish a Taxation System Review Panel comprising representatives from the public and private sectors. This Panel will review the tax system, including the provisions of the Income Tax Act 1967. The focus of this review is to ensure that tax provisions remain relevant. Existing provisions will be amended to improve clarity and transparency of tax administration.
19. Another aspect of taxation which will be reviewed is the consumption tax. The consumption tax, in its present form, consists of sales tax and service tax. Sales tax is levied on goods at the point of import or at the manufacturers’ level. Service tax, on the other hand, is imposed on selected services, including those provided by professionals, as well as operators of hotels and restaurants. The Government proposes to replace both these taxes with a single consumption tax, based on the value-added concept. The new tax, known as the Goods and Services Tax (GST), will be more comprehensive, efficient, transparent and effective, thereby enhancing tax compliance. Given that, under the new system, companies need to keep orderly accounts, the Government’s revenue collection is also expected to increase.
20. The Government proposes to implement this new tax on 1 January 2007. The introduction of the new tax will provide the Government with the opportunity to reduce corporate and individual income tax rates. The Government will also ensure that the low-income group will not be burdened by the implementation of GST. In this regard, goods and services considered as basic needs will either be zero-rated or exempted. In addition, small businesses will also be exempted from this tax.
21. The Government will provide opportunities for public and private organisations to participate in the discussions towards the implementation of GST.
Income Tax Refunds
22. The Government has introduced assessment on current year basis as well as the Self Assessment System (SAS) that require taxpayers to ascertain their tax payable. Since the introduction of SAS for companies in 2001, there are companies that have made excess payments on their income tax. To expedite income tax refunds to companies, the Government proposes the following measures:
i. Fund for Tax Refund be established to provide for income tax refunds;
ii. excess payments will first be offset against the current year tax liability of the company; and
iii. refunds of excess payments be made from the Fund to companies, which do not have any income tax liability in the current year.
23. These measures will improve the Government’s delivery system as refunds of excess income tax payments will be made in a shorter period of time.
Income Tax Administration
Mr. Speaker Sir, 24. The Government proposes the following tax measures to enable taxpayers to ascertain their tax liabilities more easily under the SAS, as well as enhance the efficiency of tax administration:
i. the basis of computation for Industrial Building Allowance on the purchase of used buildings be amended from residual value to current purchase price; and
ii. the deadline to file tax returns by sole proprietors, partnerships, clubs and associations be extended from 30 April to 30 June each year to provide sufficient time to prepare their accounts and ascertain the tax payable.
Zakat on Business Income
25. Currently, companies paying zakat on business income are not granted any tax deduction. To reduce the cost of doing business, the Government proposes zakat on business income paid by companies be allowed as deduction for the computation of income tax, not exceeding 2.5 percent of aggregate income.
Strengthening Financial Management
26. The consolidation of public finance calls for bold reforms in financial management and expenditure. I will ensure that all government departments and agencies give due attention to audit reports by the Auditor General. They must act promptly to overcome weaknesses highlighted in the audit reports. The Special Cabinet Committee on Integrity of Government Management, which I chair, will monitor this matter.
Streamlining Delivery System
27. The administrative machinery and delivery system will be streamlined by restructuring systems and work procedures and processes, including outdated laws and guidelines. A total of 20 statutes and procedures has been identified for amendments, while 104 systems and work processes in 16 ministries will be streamlined. Consultants will be appointed to undertake studies to assist the Government in formulating re-engineering strategies.
28. One of the approaches undertaken to improve delivery system is the implementation of the Disclosure-Based Regulation (DBR), which requires the authorities to clearly set out the criteria to be fulfilled in order for approval to be granted. Under DBR, approvals are automatic upon confirmation by companies that they have complied with the requirements. This method is expected to expedite the approval process as well as increase efficiency and transparency, compared to the merit-based system where the authorities are required to consider each application based on merit. DBR has been implemented by the Securities Commission and the Foreign Investment Committee and will be extended to other agencies. With DBR, the Government will shift the focus from the approval process itself to enforcement aspects of the regulations. The protection of minority shareholders will remain a priority to ensure greater confidence in the capital market.
29. The Government has restructured the administrative machinery of District and Land Offices as well as Local Authorities. The New Strategy for Land Administration was launched in March 2004 to streamline work processes on land matters. These included the shortening of work process activities, formulating norms for processing time of land applications, expediting decision making processes as well as increasing transparency.
30. The Government will expand the use of information and communications technology (ICT). To expedite payments and ensure accuracy of financial information, eTreasury which incorporates eSPKB and ePerolehan, will be implemented under the Ministry of Finance. The public is encouraged to transact electronically with the Government departments using various applications that have been developed.
Improving Efficiency of Public Transportation
31. The Government will implement measures to improve the efficiency of public transportation services to reduce the cost of doing business. Priority will be given to reducing traffic congestion, especially in major cities to avoid wastage of manpower and time, thereby increasing productivity. Savings in travel time will also enable the commuters to spend more quality time with their families.
32. Traffic congestion in the Klang Valley has worsened due to declining utilisation of public transport, particularly of buses, from 34 percent in 1985 to 16 percent currently. On the other hand, the use of private cars has increased significantly from 47 percent to 71 percent.
33. The Steering Committee on the Integration and Restructuring of the Public Transport System in the Klang Valley will undertake measures to increase the quality of light rail and existing bus services. Physical integration will be implemented to improve connectivity in public transport terminals, as well as the use of integrated ticketing and fare system. This will encourage greater use of public transportation, thereby reducing traffic congestion, particularly in Kuala Lumpur. The Government is aware of the importance of a comprehensive and efficient public transportation system in improving accessibility to job opportunities in urban centres for the low-income group living in the outskirts.
34. Syarikat Prasarana Negara Bhd (SPNB) will be responsible for the building and financing of infrastructure. The operation of transport facilities will be undertaken by the newly established Rangkaian Pengangkutan Integrasi Deras (RAPID) KL. SPNB and RAPID KL are government-owned companies, which will be managed by professional team with expertise in public transportation.
35. The INSPAK Steering Committee will initiate the establishment of the Klang Valley Urban Transport Authority as the regulatory authority for public transport in the Klang Valley.
Maintenance of Public Infrastructure
36. To cultivate a maintenance culture, the Government will place greater focus on the maintenance of public infrastructure. A systematic maintenance scheme will be implemented to maintain and prolong the economic life of public assets, as well as beautify surroundings and enhance cleanliness. The programme on maintenance of public facilities, such as hospitals, schools and government staff quarters will be undertaken through outsourcing the maintenance function to small entrepreneurs at the district level, particularly class F contractors. The entrepreneurs will be encouraged to use modern equipment and maintenance techniques. A sum of RM500 million is allocated for this programme in 2005.
Fostering Culture of High Performance
Mr. Speaker Sir,
37. In order to increase national competitiveness and productivity, we require a creative and innovative workforce that possesses integrity. The Government is committed to inculcating a culture of high performance as part of the national agenda. Government-linked companies (GLCs) play an important role in instilling the culture of high performance, given their involvement in nearly all strategic sectors, such as energy, telecommunications, finance and transport.
38. The Government has launched the Key Performance Indicators (KPIs) and Performance Linked Compensation (PLC) programmes for GLCs. Under this approach, management is made fully accountable for the company’s performance, and is incentivised accordingly. In this regard, senior management of GLCs will be appointed on a contract basis, and will only be renewed upon achievement of targets set. However, the KPIs and PLC programmes are not confined to compensation only. Indeed, the main focus is to set strategic direction and targets, as well as improve management and monitoring processes to enhance the performance of GLCs. All GLCs will be required to fully adopt KPIs and PLC programmes by 2005. Khazanah Nasional has been given the important role of coordinating their implementation, especially for public-listed companies.
39. The KPI concept will also be implemented in public agencies to improve performance. Beginning August this year, six agencies have implemented KPIs on a pilot basis, including the Immigration Department and National Registration Department.
40. Priority will be given to promoting ethical values and governance as well as curbing corruption. To enhance the level of national integrity, the National Integrity Plan (PIN) was launched in April 2004. PIN is not only designed for implementation for the public sector, but should also be adopted by the private sector. To monitor its implementation, the Malaysian Institute of Integrity has been established with an allocation of RM6 million.
SECOND STRATEGY: ACCELERATING THE SHIFT TOWARDS A HIGHER VALUE-ADDED ECONOMY
Mr. Speaker Sir,
41. Moving forward, the Government intends to accelerate the transition towards a higher value-added economy. Priority will be given to developing products in new areas of growth. In this regard, domestic investments will be promoted while foreign investments will continue to be emphasised in selected and strategic economic sectors.
Towards Greater Dynamism Of The Agriculture Sector
42. Malaysia has been recognised as an efficient and major global producer of several agricultural commodities, such as palm oil, rubber, cocoa and pepper. However, the potential for food production has yet to be fully exploited, considering the high food import bill of RM13.9 billion in 2003. Budget 2005 will focus on revamping the agriculture sector as the third engine of growth, after the manufacturing and services sectors. This policy has two objectives, namely to increase income and reduce dependence on imports, particularly food.
Promoting Commercialisation of Agriculture
43. Our aim is to make Malaysia a competitive global producer of high quality and safe agricultural products that meet international standards. The emphasis will be to:
i. adopt modern agricultural methods through the application of technology and R&D findings, including biotechnology;
ii. develop Malaysia as a centre of processing, packaging and marketing of agricultural products for global markets;
iii. develop skilled manpower by transforming Universiti Putra Malaysia into a centre of excellence for agriculture education; and
iv. encourage the private sector, especially GLCs, 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.
44. The development of the smallholders sector will be accelerated through modernisation and application of technology and efficient management. The output of smallholders will be increased through the utilisation of quality seeds and livestock breeds. Extension services will be made more effective to increase the capabilities of farmers, fishermen and livestock breeders. A sum of RM1.5 billion is allocated for agricultural projects, especially for projects benefitting smallholders. 45. Several tax incentives have been provided to encourage the modernisation and commercialisation of the agriculture sector. These incentives include a 100 percent deduction on capital expenditure, Pioneer Status or Investment Tax Allowance for 5 years and Reinvestment Allowance for 15 years.
46. In the 2001 Budget, the Government had introduced tax incentives to encourage food production such as vegetable farming, aquaculture and cattle rearing. Under these incentives, a company investing in its subsidiary is given tax deduction equivalent to actual investment or granted group relief, whilst the subsidiary company that undertakes the project is given 100 percent tax exemption for a period of 10 years.
47. Since the introduction of these incentives, 141 projects have been approved involving a total investment of RM941 million in food cultivation, aquaculture and livestock rearing. As these incentives will expire in 2005, the Government proposes to extend the period for another five years until 2010. In addition, the equity requirement for a company investing in its subsidiary is reduced from 100 percent to at least 70 percent.
48. To reduce dependence on labour and promote mechanisation and automation in the agriculture sector, including plantations, the Government proposes the write-off period for capital expenditure on machinery and equipment used in the agriculture sector be reduced from between four and eight years to two years.
Developing Halal Products
49. The global demand for halal food is projected to increase to RM2 trillion in 2005. This vast potential must be tapped to enable Malaysia to be one of the leading producers and exporters in the world.
50. Malaysia has many competitive advantages in the production of halal food. We have the expertise in certification and registration of halal logo certificates, recognised throughout the world. I recently launched Standard Halal Malaysia MS1500:2004, which encompasses compliance with international standards of Good Manufacturing Practices and Good Hygiene Practices. Malaysia’s halal products 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.
51. In this regard, the Government proposes double deduction incentive be given to producers of halal products on expenses incurred in meeting the standards to obtain halal certificates from Jabatan Kemajuan Islam Malaysia. To encourage new investments and increase the use of modern and state-of-the-art machinery and equipment, the Government proposes Investment Tax Allowance of 100 percent for 5 years be granted to companies which produce halal food.
52. A Special Fund for Development and Promotion of Halal Products will be established with an allocation of RM10 million. The Fund will finance studies in business planning, technology and market development, as well as improving productivity and quality to achieve international certification and for penetration of export markets.
Enhancing the Services Sector
Mr. Speaker Sir,
53. The services sector is a key source of economic development, particularly finance and ICT. Development in other sub-sectors, including tourism, health and education, have also shown promising results. Hence, measures will continue to be taken to strengthen selected activities in this sector.
Strengthening the Capital Market
Mr. Speaker Sir,
54. The implementation of the Capital Market Master Plan has further strengthened the Malaysian capital market. Developmental efforts in the capital market will contribute towards increasing global competitiveness, promoting innovation, as well as widening market coverage. In this respect, the Government will:
i. allow up to five major foreign stockbrokers to operate in Malaysia. Their presence will strengthen the distribution network as well as increase liquidity;
ii. allow up to five leading global fund managers to operate in Malaysia. This will enhance fund management expertise and improve the quality of services. Malaysian investment instruments will be promoted globally;
iii. allow 100 percent foreign ownership in futures broking companies to increase liquidity and level of capital market risk management;
iv. allow 100 percent foreign ownership in venture capital companies to increase funding and expertise to promote investments in the ICT sector;
v. allow local stockbroking companies which have merged with at least one other stockbroking company to establish four additional branches or Electronic Access Facilities Permitted Activities;
vi. abolish the limit on the number of foreign dealer representatives. This will enable the stockbroking companies to strengthen their distribution network in overseas markets; and
vii. allow the Employees Provident Fund (EPF) to increase the size of its funds placed with local fund management companies, including non-bank owned companies. Presently, EPF placement with local fund management companies is about RM6 billion and this amount will be doubled to RM12 billion within 3 years.
Mr. Speaker Sir,
55. The Government will continue with its efforts to expand the domestic bond market and diversify alternative sources of financing. Supranational agencies such as the World Bank, International Finance Corporation and Asian Development Bank, as well as foreign multinationals will be allowed to issue ringgit-denominated bonds. The issuance of bonds by supranational agencies and multinationals will assist Malaysia to be a regional financial centre.
56. To further strengthen this initiative, the Government proposes tax exemption be given on interest income derived by non-resident companies from:
i. ringgit-denominated Islamic securities and debentures, excluding convertible loan stocks, approved by the Securities Commission; and
ii. securities issued by the Government of Malaysia.
57. To benefit the pensioners, the Government has, up to August 2004, issued Merdeka Bonds of RM1.5 billion with an annual return of 5 percent. Given the overwhelming response, an additional RM1.75 billion will be issued up to end 2005.
Developing the Islamic Financial System
58. The Malaysian Islamic financial system, including takaful, has been recognised by the international community. The Government is determined to make Malaysia the hub for Islamic financial services. An international financial training institute will be established to produce experts in Islamic financial system. To further strengthen the Islamic financial system, the Government will issue Islamic Treasury Bills. Currently, Treasury Bills are only issued in conventional form. Government Investment Issues, issued based on syariah principles will be increased in 2005.
59. Overseas branches of local banks will establish Islamic banking counters. In countries where Malaysian banks do not have branches, joint ventures are encouraged to provide Islamic banking services.
60. The Government will further develop Islamic financial and capital market products. Taxes and duties are exempted on selected Islamic products to ensure tax neutrality with conventional products on a case by case basis, which has created uncertainty on the tax treatment when new Islamic products are introduced. Therefore, the Government proposes for tax neutrality between Islamic and conventional products by exempting any additional tax or duty provided:
i. Islamic financial products are approved by the Syariah Advisory Council of Bank Negara Malaysia; or
ii. Islamic capital market products are approved by the Syariah Advisory Council of Securities Commission.
Tax Treatment on Interest-in-Suspense
61. Currently, tax is imposed on interest-in-suspense, although the income has yet to be received by the financial institutions. To further strengthen the cash flow of financial institutions in the context of ensuring competitiveness and long-term resilience, the Government proposes to deem interest-in-suspense as a special provision for bad debts and be allowed as a deduction in the computation of income tax. However, income tax will be charged when such interest-in-suspense is received.
Increasing Tax Relief on Contributions to EPF and Takaful as well as Life Insurance Premiums
62. To encourage savings as well as develop the insurance and takaful industry, the Government proposes individual income tax relief on contributions to EPF and takaful as well as premium payments for life insurance be increased from RM5,000 to RM6,000.
Real Estate Investment Trust
Mr. Speaker Sir,
63. Liquidity in the real estate sector needs to be increased to enhance its contribution to economic development. We must intensify efforts to convert illiquid assets into liquid assets, thereby enabling real estate companies to utilise the income from the sale of existing properties for the development of new property projects. Real Estate Investment Trust (REIT) is an important instrument to achieve this objective. To promote REIT, the Government proposes to introduce a more attractive tax treatment as follows: i. REIT be exempted from tax on income distributed to its unit holders whereas the undistributed income will be taxed at 28 percent;
ii. income distributed to unit holders will be taxed at their respective tax rates. However, for non-resident unit holders, the tax payable at 28 percent will be withheld by REIT; and
iii. the accumulated income that has been taxed and subsequently distributed is eligible for tax credit in the hands of unit holders.
Promoting the Tourism Sector
Mr. Speaker Sir,
64. Tourism has become an important generator of growth. We must further intensify efforts to promote our beautiful natural environment, distinctive historical heritage and our unique multi-ethnic culture. Monthly tourist arrivals averaged 875,000 in 2003 and are estimated to reach 1.2 million this year. Promotional efforts will be intensified to attract more tourists, especially from West Asia, China and Japan.
65. To establish Kuala Lumpur as an international centre for arts and culture, the Government proposes that arts and cultural performances by local artistes held in the Federal Territory of Kuala Lumpur, Labuan and Putrajaya be given full exemption on entertainment duty provided that such performances are approved by the Ministry of Culture, Arts and Heritage. I call upon all state governments to undertake similar measures.
66. Malaysia has emerged as a centre of excellence for education. At present, there are 51,000 foreign students in Malaysia from 130 countries. To further promote education tourism, the following measures will be undertaken: i. expedite approvals and accreditation of courses by private institutions of higher learning (IPTS);
ii. assist IPTS to obtain accreditation, particularly from 14 identified countries and promote networking among 30 leading IPTS with private education associations and promotion agencies; and
iii. rank the performance of IPTA/IPTS based on international standards.
67. IPTS are encouraged to form smart partnerships and merge to create strong and leading educational entities at par with renowned universities in developed countries. To support this initiative, the Government proposes exemption of stamp duty and real property gains tax be given to IPTS that merge. To expedite the mergers, these tax exemptions will be given up to 2006. 68. There is great potential for growth in health tourism. Malaysia has succeeded in attracting 103,000 foreigners under the health tourism packages in 2003, with total revenue of RM58.3 million. To further increase its contribution, the following measures will be undertaken:
i. organise health tourism packages through coordinating efforts between hospitals and hotels as well as establishing an international referral network;
ii. encourage Malaysian hospitals to obtain international accreditations and forge strategic alliances with leading medical centres in the world;
iii. encourage the private sector to establish Malaysian multinational health companies;
iv. relax immigration conditions for entry of foreign medical specialists, therapists and patients; and
v. support clinical research in health institutions to promote the emergence of clinical centres of excellence.
Developing the ICT Sector
69. The Government will continue to develop the ICT sector and the Multimedia Super Corridor (MSC). The MSC International Advisory Panel that met on 2 and 3 September 2004 has recognised the performance of MSC, which is into the second phase of development 2004-2010.
70. ICT is capable of generating economic growth and will be expanded. MSC will be strengthened with the roll-out to Bayan Lepas, Pulau Pinang and Kulim High-Technology Park, Kedah. New sources of growth will be developed, particularly in the shared services and outsourcing industry where Malaysia has been ranked as the third best location in the world. The target is to create an additional 100,000 high value-added jobs to the existing 20,000 in MSC.
71. Various measures will be implemented to develop new sources of growth in the ICT sector, including training skilled manpower, developing technopreneurs, increasing international promotions and providing specific incentives to investors.
Exporting Professional Services 72. Professional services and contractors are encouraged to penetrate foreign markets. The Construction Industry Development Board (CIDB) and Professional Services Development Centre (PSDC) will assist them in this effort. CIDB will hold equity in PSDC to better coordinate the penetration of foreign markets by professional groups and contractors.
Strengthening the Manufacturing Sector
Mr. Speaker Sir,
73. The manufacturing sector has long been the catalyst of growth and we are now embarking on the structural transformation towards greater capital and technology based industries. The Government will continue to provide a conducive business environment. Training and technical skills will be upgraded. The Government will support the private sector to develop the supply chain from production to marketing. Benchmarking is encouraged to enhance the quality of production and processing to meet international standards.
74. A Microelectronics Centre will be established to increase the competitiveness of the semiconductor industry. This Centre will utilise existing facilities and institutions to coordinate training and design in microelectronics.
75. Currently, there are local companies, including those with Malaysian brand names, which have outsourced to contract manufacturers, either locally or abroad, enabling them to focus on high value-added activities, such as design and R&D. These companies import raw materials or components for their contract manufacturers. Such companies are currently not eligible for import duty exemption as provided to manufacturers. In this regard, the Government proposes that such companies be granted similar incentives as the manufacturers, that is import duty and sales tax exemptions on raw materials, which are not manufactured locally and semi-finished goods imported from contract manufacturers abroad.
76. The Government intends to promote the manufacture of high quality Malaysian goods, especially to penetrate foreign markets. The Government proposes to provide double deduction on expenses incurred to obtain international quality standards.
Abolishing or Reducing Import Duties on Selected Goods
77. To reduce the cost of doing business as well as tariff protection in stages, the Government proposes to:
i. abolish import duty on selected goods such as surgical gloves, carpet, glassware and semi-finished components for the wood-based industry, from the current import duty between 5 and 25 percent; and
ii. reduce import duty on selected raw materials for the apparel industry and herbicides from between 10 and 35 percent to between 5 and 30 percent.
Relocation of Manufacturing Activities to Promoted Areas
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