Boosting rakyat’s disposable income

Disposable income increases for individuals Budget 2018 is a winner for individuals. The government has rewarded all sections of society: the very poor (B40), middle income (M40), civil servants, pensioners, senior citizens, families, students/school children, Felda settlers, paddy farmers and women. All races have also been given handouts in different forms. These actions signal that a general election is around the corner.

The growth story The government has kept its promise to keep the growth momentum going which is reflected by the reduction in the budget deficit in 2018 to 2.8%. The momentum here will be kept up through expenditure on high impact investments: petroleum related industries, logistics, aerospace, rail and robotics; coupled with significant support for the SMEs, exports sector, agricultural sector and tourism sector.

Who benefits? B40 – Approximately seven million BR1M recipients will continue to receive this benefit amounting to RM6.8 billion (maximum amount – RM1,200) together with other benefits such as schooling assistance of RM100, and RM200 million have been allocated under PTPTN for further studies. This group will also benefit from the lower prices on the five basic commodities sold through KR1M.

The M40 group was given a two percentage point reduction in personal tax for those earning taxable income from RM20,000 upwards (tax savings ranges from RM300 to RM1,000).

Felda settlers will enjoy a special incentive of RM5,000 and a repayment RM43 million of cess money paid in the early years. 5,000 second generation Felda homes will also be built for them.

The others who will receive special payments are: civil servants – RM1,500; pensioners – RM750; senior citizens – RM300; farmers – RM600 (whilst waiting for paddy harvesting); special assistance to Tok Batins, village heads, imams, etc – RM1,500.

Billions of ringgit will be given to the different sections of society in Malaysia. Example: bumiputra students will be given scholarships and training programmes under Mara (RM2.5B), the Indian community will be given a special distribution of 1Malaysia Unit Trust (RM1.5 billion), development of Chinese New Villages and house restoration (RM75 million), Orang Asli students will benefit from the Community Food Assistance Programme (RM50 million).

It is an unexpected but highly welcomed move by government to encourage women to re-enter the workforce after at least two years by incentivising them through an income tax exemption for the income they will earn in the next 12 months. This will help Malaysia reduce their dependence on foreign labour.

Where will the growth come from? Our growth story will be principally underpinned by the continuing growth in the export oriented industries (electronics, latex, furniture), export of commodities and related products (petroleum, palm oil, timber), coupled with significant expenditure in infrastructure spending such as the Pan-Borneo highway, East Coast Rail Line, MRT2 SSP Line, etc.

Economic growth will be significantly supported by the SME sector which is expected to contribute 41% to GDP by 2020.

Malaysia also plans to be in the forefront of digital economy. Malaysia’s establishment of the Digital Free Trade Zone which is expected to house 1,500 SMEs to participate in the digital economy and is expected to attract RM700 million and create 2,500 job opportunities.

To continue attracting multinational to use Malaysia as a regional centre, the principal hub incentive will be extended for three more years. To date, the incentive has attracted many multinationals to locate their regional headquarters in Malaysia.

Incentives will also be given to encourage our manufacturers to adopt Industrial Revolution 4.0 by using robotics and automation in their manufacturing activities.

What is the future? Budget 2018 has given significant benefits to nearly every section of the community and businesses.

The key question is: Where will the money come from? It appears that the money needed to finance the giveaways is likely to be from the same sources: income tax, GST, customs duties and other indirect taxes, levies and borrowings. The simple message to taxpayers is: be prepared for more rigorous scrutiny from the tax authorities.

The writer is the managing director of Crowe Horwath Tax Sdn Bhd and chairman of the Board of Trustees of Malaysia Tax Research Foundation.