2019 Malaysia BUDGET SPEECH BY YB TUAN LIM GUAN ENG MINISTER OF FINANCE (Part 4)

Link to download the entire speech : http://www.treasury.gov.my/index.php/en/budget/item/4526-annual-budget-2019.html
Upholding Islam

1. As the religion of the Federation, Islam enjoys a special
   position in the Constitution. The allocation for Islamic affairs
   for both development and operating expenditures has been
   increased from RM1.1 billion in 2018 to RM1.2 billion in 2019.
   As such, to ensure the activities related to Islamic affairs is not
   impacted due to the challenging economic situation, an additional
   RM150 million has been made available to carry out programmes
   such as building mosques and surau across the country, enhancing
   the “Khaira Ummah” initiative to train more professionals
   among the huffaz and religious learning modules using
   braille.

THIRD FOCUS: TO FOSTER AN ENTREPRENEURIAL STATE

Mr Speaker Sir,

1. We need to create an ecosystem that enables Malaysians
   to fulfil their potential. Sustainable and dynamic economic
   growth can be promoted through an entrepreneurial state and
   by embracing the new economy and digital economy.
2. The entrepreneurial state model adopts a 4P partnership
   involving the Public Sector, Private Sector, Professionals and
   the People to develop and implement projects. There will be
   co-financing by the four principal parties, however the projects
   will be managed by the private sector or professionals and held
   accountable to both the Government and the people.

Strategy 9: Unleashing the Power of the New Economy

Mr Speaker Sir,

Embracing the Digital Economy

1. To support new technology developments and ensure
   sufficient funding for entrepreneurs via conventional and
   alternative financing sources, the Government proposes the
   following initiatives:

2. FIRST: The many venture capital funds managed
   by Government agencies such as the Malaysia Technology
   Development Corporation, Malaysia Debt Ventures Bhd, Malaysia
   Venture Capital Management Bhd, Kumpulan Modal Perdana
   Sdn Bhd and Cradle Fund Sdn Bhd, will be streamlined. To
   ensure that the funds are accessible to those who are most
   likely to succeed, the disbursement of funding will be tied to
   the companies ability to secure matching funds from the private
   sector.

3. SECOND: Government-Linked Investment Funds will
   similarly allocate RM2 billion in matching grant to co-invest
   in the private equity and venture capital funds. This Fund
   will focus on strategic sectors and new growth areas for
   Malaysia.

4. THIRD: The Government will allocate RM50 million to
   set up a Co-Investment Fund (CIF) to invest alongside private
   investors via new alternative financing platforms involving Equity
   Crowdfunding and Peer-to-Peer Lending.

5. The Securities Commission has approved the regulatory
   framework for these platforms. To date, almost RM170 million has
   been raised through these crowdfunding platforms, benefitting
   450 companies across a broad cross-section of sectors, through
   these platforms. Almost 10,000 individual investors have invested
   through these alternative financing platforms, where 45% of the
   investors are youths below the age of 35.

6. FOURTH: The Capital Markets and Services (Prescription
   of Securities) Order will be gazetted in early 2019 to set up a
   new regulatory framework to approve and monitor Digital Coin
   and Token Exchanges.

7. FIFTH: To promote Malaysia as a global leader of the
   bond and sukuk markets, the Government will:

• extend the double tax deduction for additional
expenditure incurred when issuing sukuk under the
principles of Ijarah and Wakalah, as well as for additional
expenditure incurred by the companies issuing retail
bonds or sukuk, for 2 years of assessment beginning
2019; and

• set up a Special Committee on Islamic Finance led
by the Ministry of Finance with members from Bank
Negara Malaysia and Securities Commission.
32 BUDGET 2019

1. SIXTH: To promote a world-class film production industry
   in Malaysia, The Government will continue the Film In Malaysia
   Incentive (FIMI) with an allocation of RM30 million. Moreover,
   Khazanah Nasional Berhad (Khazanah) will provide an allocation
   of RM100 million for FIMI specifically for film productions at the
   Pinewood studio in Iskandar Johor.

2. SEVENTH: To support the growth of the digital economy,
   the Government will implement the National Fibrerisation
   and Connectivity Plan in 2019, starting with an allocation of
   RM1 billion. The plan will develop our broadband infrastructure
   to ensure more efficient spectrum allocation to achieve the
   targeted 30 Mbps speed at rural and remote areas in the country
   within 5 years as part of the overall plan to achieve world class
   infrastructure at affordable prices. The Government has enforced
   the Mandatory Standards for Access Pricing (MSAP) which is
   expected to result in fixed broadband prices being reduced by
   at least 25% by the end of 2018.

Accelerating the Adoption of Industry 4.0

Mr Speaker Sir,

1. The recent Industry 4.0 blueprint, titled “Industry4WRD”
   aims to make Malaysia the prime destination for high-tech
   industries. The Government will initiate the following measures
   to support Industry4WRD as follows:

2. FIRST: The Government will allocate RM210 million
   from 2019 to 2021 to support the transition and migration
   to Industry 4.0. The Malaysia Productivity Corporation
   will carry out Readiness Assessments to assist up to 500
   Small Medium Enterprises (SMEs) to migrate to Industry 4.0
   technologies.

3. SECOND: The Knowledge Resource for Science and
   Technology Excellence (KRSTE.my) will be established to enable
   greater sharing of Research and Development (R&D) resources
   between public and private sector. In 2019, the Government will
   make available 250 facilities and 1,200 scientific equipment
   and research data for the private sector to access and share.
   In addition, the Government will start a Researcher-Mapping
   program to place at least 100 public sector researchers with the
   private sector, with the cost borne by the Government.

4. THIRD: To incentivise SMEs to invest in automation and
   modernisation which forms part of the Industry 4.0, RM2 billion
   will be provided under the Skim Jaminan Pembiayaan Perniagaan
   (SJPP) loan guarantee program where the Government will provide
   a guarantee of up to 70% of the amount financed.

5. FOURTH: The Government will establish a RM3 billion
   Industry Digitalisation Transformation Fund under BPMB offering
   an interest subsidy of 2%. The purpose of this fund is to accelerate
   industry adoption of Industry 4.0 related technologies including
   robotics and artificial intelligence.

6. FIFTH: MIDA will continue to provide matching grants
   through the High Impact Fund (HIF) with a specific emphasis on
   promoting Industry 4.0 initiatives. This includes activities such as
   Research & Development, adoption of international certification
   and standards, modernisation and upgrading of facilities and
   tools with the latest technology.

7. SIXTH: Khazanah will lead and develop an 80-acre
   development in Subang as a world class aerospace industry hub.
   Khazanah will also work with all relevant agencies, especially
   MARA to produce high-skilled workers to meet industry demands.

8. In addition to the above measures, the Government proposes
   the following double tax deduction to improve employability of
   graduates and the Industry 4.0 related skill competencies of
   required by the workforce:
   • for scholarships and bursaries provided by companies
   to students enrolled for technical and vocational
   training, diploma and degree courses in engineering
   and technology;
   • for expenses incurred by companies related to participation
   in the National Dual Training Scheme for Industry 4.0
   approved by the Ministry of Human Resources; and

• for expenses incurred in carrying out structured
training and internship programmes for students in
the fields of engineering and technology, which are
approved by the Ministry of Human Resources.

Strategy 10: Seizing Opportunities in the Face of Global Challenges

Mr Speaker Sir,

1. Malaysia will undoubtedly be affected by the US-China
   trade war given that both these countries are among our top
   3 trading partners. However, the trade conflict between China
   and the US also creates a unique opportunity for Malaysia to
   position itself as a safe haven for manufacturing investors.

2. Therefore, it is not surprising that Malaysia continues to
   strongly attract Foreign Direct Investment (FDI). From January to
   August 2018, Malaysia recorded a total of RM61.6 billion in investment
   approvals, up from RM40.4 billion during the same period in 2017.

3. The manufacturing sector continues to contribute the
   largest share of investment approvals at RM49.8 billion, or
   approximately 81% of total investments. The 411 projects approved
   have the potential to create more than 34,000 jobs nationwide.
   This demonstrates that investor confidence in Malaysia has not
   wavered after the 14th general election.

4. In the World Bank’s Doing Business Report 2019 published
   this week, Malaysia’s ranking jumped from 24th to 15th in
   the world. To further enhance Malaysia’s competitiveness and
   ease of doing business, the Ministry of Finance (MoF) and the
   Ministry of International Trade and Industry (MITI) will form a
   task force jointly chaired by both Ministers to drive regulatory
   reform, particularly in the areas of improving trade processes
   and tax administration. This will send a signal to the world that
   Malaysia is investor friendly and that we are open for business.

5. To increase investments of companies already participating
   in the Principal Hub, the Government proposes to enhance the
   existing incentives by providing a concessionary income tax rate
   of 10% on the overall statutory income related to Principal Hub
   activities for a period of 5 years.

Strengthening Small Medium Enterprises (SME)

Mr Speaker Sir,

1. SMEs constitute 98.5% of businesses in the country and is
   the primary engine of economic growth for the nation. Therefore,
   to ensure that SMEs continue to thrive, especially in the principal
   industries, The Government will implement the following measures:

2. FIRST: A RM4.5 billion SME fund will be made available
   via commercial financial institutions with a 70% guarantee from
   SJPP, including RM1 billion for Bumiputera SMEs;

3. SECOND: For SMEs with taxable income up to RM500,000
   and paid-up capital of up to RM2.5 million, the corporate income
   tax rate will be reduced from 18% to 17%

4. THIRD: The Government will encourage exports through
   financing by the Export-Import Bank of Malaysia Berhad (EXIM)
   Bank by making available RM2 billion worth of credit and takaful
   facilities to SME exporters.

5. FOURTH: The Government will be allocating RM100 million
   to upgrade the capability of the SMEs in the halal industry
   through various programs in order to increase exports and to
   make Malaysia a global halal hub by 2020.

6. FIFTH: There will also be a RM1 billion SME Syariah
   Compliant Financing Scheme made available via Islamic financial
   institutions to finance exporters of halal products, where the
   Government will provide a profit rate subsidy of 2%.

7. SIXTH: Perbadanan Usahawan Nasional Berhad will
   also make available RM200 million for the wholesale and retail
   industry, as well as for the purchase of business premises to
   be rented to Bumiputera SMEs. In addition, RM100 million is
   allocated to TEKUN to finance small enterprises.

8. SEVENTH: The Government will allocate RM20 million to
   initiate a ‘Buy Malaysian First’ campaign to support local products
   and services. The campaign will be focused at grassroots level to
   provide a platform for local producers, manufacturers and service
   providers to market their products and services at hypermarkets,
   shopping centres and trade fairs. To take the lead, the Ministry
   of Finance will ensure Malaysian products and services, such
   as medical devices which have been recognised internationally
   will be provided access to Goverment procurement.

9. To ensure Malaysian companies continue to move up value
   chain, the Government is committed to reduce our dependency
   on low-skilled foreign labour. Therefore, The Government will
   implement a new tiered levy system where the levies charged will
   be higher for employers with a higher proportion of foreign workers.

10. The shortage of workers in the agriculture and plantation
    industries and the decline in prices of agricultural commodities
    have affected output in these sectors. The Government will assist
    these two sectors by reducing the extension levy for foreign
    workers who have served for 10 years or more, from RM10,000
    to RM3,500 per worker per annum.

Facilitating the Logistics and Transportation Sector

Mr Speaker Sir,

1. The logistics and transportation sector plays an important
   role in national development, particularly given both exports and
   manufacturing are key pillars of the economy. The Government
   will allocate RM2.46 billion for upgrading and restoration works
   for railway tracks to upgrade the country’s transport infrastructure.

2. The Government is committed to drive the development
   and growth of the Kota Perdana Special Border Economic Zone
   in Bukit Kayu Hitam, Kedah as a strategic gateway for two way
   trade between Malaysia and Thailand. As an initial phase of the
   project, RM25 million will be allocated to develop a truck depot.

3. The Government plans to convert 380 acres of land in
   Pulau Indah into a Free Trade Zone to support and catalyse
   increased shipping and logistics activities in Port Klang. The
   new FTZ will serve as a natural extension to the Port Klang
   Free Zone. The land will be developed through a joint venture
   or solely by the private sector.

Value-adding the Commodities Sector

Mr Speaker Sir,

1. Palm oil and rubber are the two export-oriented commodities
   which contribute significantly to our economy. The sector also
   provides a key source of income for our smallholders. In order
   to raise the demand for palm oil and increase the sustainability
   of our energy resources, the Government will implement the
   Biodiesel B10 program (comprising a mix of 10% palm oil) for the
   transportation sector and B7 for the industrial sector in 2019. In
   addition, to raise the sustainability and export competitiveness of
   our palm oil industry, the Government will allocate RM30 million
   to assist smallholders to obtain the Malaysian Sustainable Palm
   Oil (MSPO) certification.

2. For the rubber industry, the Government is committed
   to increase the utilisation of local rubber as a new raw
   material for various industrial products. As an example, the
   Government will increase the use of local rubber as a composite
   material for the construction of roads in Malaysia to increase
   durability while at the same time reducing maintenance cost.
   The Government targets the use of Cuplump Modified Bitumen
   (CMB) to build roads, including at ports and industrial areas
   in stages. The Government will allocate RM100 million for this
   purpose.

3. In addition, the Government will continue to provide
   the Rubber Production Incentive (IPG), with an allocation
   of RM50 million to mitigate the impact of low rubber
   prices to smallholders. The smallholders would receive
   supplemental income when rubber prices fall below RM2.20 per
   kilogram.

4. For the agricultural sector, the Government will allocate
   • RM47 million for R&D to increase the productivity of
   our seeds, grains and fruits;

• RM18 million to promote automation of the agrofood
industry; and

• RM52 million to implement entrepreneurship and
training programs in agriculture, including to encourage
the participation of youths in the agrofood industry.

Boosting the Tourism Industry

Mr Speaker Sir,

1. The tourism industry is a key contributor to our services
   sector, constituting 14.9% of our GDP or RM201.4 billion in 2017.
   Given the importance of the tourism industry, especially as a
   source of foreign exchange income, the Government will pay
   close attention towads achieving the Ministry of Tourism, Arts
   and Culture’s target of 30 million foreign tourists contributing
   RM100 billion to the economy by 2020.

2. To achieve these goals, the Government will allocate
   RM100 million on a matching grant basis to the private sector
   in relation to promotional and marketing campaigns to increase
   the number of tourists to the country.

3. The government will provide tax-free facilities to Penang’s
   Swettenham Pier in the form of duty-free shops to cater for
   its booming cruise tourism. To realise the tourism potential of
   Pulau Pangkor, the Government is committed to Pulau Pangkor
   as a duty free island, subject to specific terms and conditions.
   The duty-free island status of Pulau Langkawi will also be
   expanded.

4. To support the efforts by the respective state governments
   in promoting tourism, the Government will allocate 50% of
   the proceeds from tourism tax as collected in the respective
   states. This measure is expected to translate to additional
   revenue to all states amounting to an estimated total of
   RM50 million.

5. The Government will also provide a 2% interest
   subsidy for RM500 million worth of loan facilities under the
   SME Tourism Fund managed by SME Bank. This will assist
   handicraft makers and homestay operators to expand their
   businesses.

6. Khazanah will lead the public-private partnership for the
   re-development and restoration of the Sultan Abdul Samad building
   in Kuala Lumpur into an arts, cultural and heritage hub. Such
   an urban regeneration project will be carried out involving the
   local heritage company, Think City Sdn Bhd with an international
   organisation accredited by United Nations Education, Scientific,
   and Cultural Organisation (UNESCO).

7. Medical tourism in Malaysia continues to gain global
   recognition. The Government will allocate RM20 million to the
   Malaysia Healthcare Tourism Council (MHTC) to generate 25%
   growth in 2019 to collaborate with reputable private hospitals
   to enable the branding of Malaysia as a destination of choice
   for medical tourism.

Strategy 11: Redefining the Role of Government in Business

Mr Speaker Sir,

1. The business of the Government is not to be in business.
   Clearly, government owned companies have been competing directly
   with private companies in non-strategic sectors. The outcome
   was the apparent crowding out of private sector investments
   where private companies are unable to grow and compete on a
   level playing field.

2. For an entrepreneurial economy to succeed, the private
   sector must lead. For a start, the Ministry of Finance will set
   up a Special Task Force to evaluate the role and functions of
   statutory bodies and companies owned by Ministry of Finance,
   Inc. to reduce duplication of functions and direct competition with
   the private sector. Going forward, the Government will focus its
   expenditure and investments only in strategic sectors and areas
   where free markets and the private sector are not interested or
   unable to meet the needs of the people and economy