Tuesday, October 11, 2011
In what is considered to be the last before he calls for elections, the Malaysian Prime Minister and Minister of Finance, Datuk Seri Najib Tun Abdul Razak, recently introduced a 2012 Budget that was full of tax breaks and incentives.
Overall, while he said that economic growth in Malaysia is estimated at between 5% and 5.5% of gross domestic product (GDP) in 2011, global economic prospects next year are expected to be more challenging. However, the government is to put in place measures to stimulate domestic economic activity, in particular public and private investment, as well as private consumption, and economic growth in 2012 is projected at between 5% and 6%.
The government’s total revenue is expected to increase by 1.9% to MYR186.9bn (USD58.9bn) in 2012, compared with MYR183.4bn in 2011. Despite the tax breaks and incentives he announced, the public deficit next year is expected to improve to 4.7% of GDP, compared with 5.4% in 2011.
Much of Najib’s speech was dedicated to the services sector, which is the largest contributor to Malaysia's economy, accounting for almost 58% of GDP, and is targeted to reach 60% of GDP by 2015. He considered that, “to accelerate the banking, finance and capital markets, continuous effort is required to promote the development of more integrated and comprehensive financial services.”
Therefore, while attempting to attract multinational companies to establish their treasury management services in Malaysia, with a 70% income tax exemption for five years, a withholding tax exemption on interest payments and a stamp duty exemption on loan and service agreements, he also proposed the accelerated development of the Kuala Lumpur International Financial District (KLIFD).
For example, for companies in the KLIFD, the government proposes a 100% income tax exemption for a period of 10 years and a stamp duty exemption on loan and service agreements, and a 70% income tax exemption for five years for property developers.
In addition, in recognition of the need for product diversification in the capital market to attract foreign and domestic investments, the government will extend the concessionary 10% tax rate on dividends of non-corporate institutional and individual investors in real estate investment trusts (REITs), currently available until December 31, 2011, for a further five years to December 31, 2016.
With regard to the pressure on property prices in the country, Najib said that the government did not believe that the current 5% real property gains tax (RPGT) on properties held and disposed within two years, is proving effective in curbing real estate speculative activity. It is therefore proposed that, from January 1, 2012, for properties bought and sold within two years, the tax rate will be 10%; for properties bought and sold within a period from two years and up to five years, the rate will be 5%; and properties bought and sold after five years will not be subject to RPGT.
In an attempt to ease the higher cost of living on lower income groups, the government is to propose the provision of one-off cash assistance. MYR500 will be given to households with a monthly income of MYR3,000 and below. Najib said that a total of 3.4m, or 53% of total households, are expected to benefit from this assistance, which will cost MYR1.8bn.
He also announced an additional bonus of half a month’s salary for civil servants, with a minimum payment of MYR500, and assistance of MYR500 to government pensioners. For 2011, the total payout will thereby be one month’s pay, with a minimum payment of MYR1,000 for civil servants and government pensioners alike, costing MYR4bn.