BUDGET 2017 COMMENT PricewaterhouseCoopers (PwC) Tax Leader Jagdev Singh

Budget 2017 centres around building a more inclusive economy for the rakyat and increasing Malaysia’s competitiveness in selected sectors. The proposals announced by our Prime Minister this evening certainly addressed the needs of the rakyat, particularly the B40 and M40 groups.

The budgeted allocations are targeted at a wide spectrum of areas, which will improve the wellbeing of the rakyat, and address the perennial issue of rising costs of living amidst a slower growth environment.
What stood out for me:
Promoting affordable housing
Home ownership has always been an issue faced by the middle and lower-income Malaysians. The government has introduced various measures over the years, but it is always a catch-up game, as increase in property values, particularly in cities, have outpaced income growth.
Given that there is no right formula, I feel that the government has made the right move in going for a mixture of options – selling houses at affordable prices, and offering rental properties, particularly for the younger generation who might still not be able to afford a home.

Introduction of lifestyle tax relief
In keeping up with the times, the Prime Minister has decided to repackage personal tax reliefs by introducing a lifestyle relief category. This encompasses lifestyle expenditure which is relevant in current times. Looking at this broadly, many new categories have been added, but the actual increase in tax relief is marginal. It would have been nice to see a higher limit of say RM5,000.

Increase in BR1M handouts
If you recall, the introduction of BR1M coincided with the scaling back of subsidies in 2012. It was seen as a more targeted approach which would directly benefit the lower income group and deal with the increasing cost of living, and it is still the case today.
Over time, the personal tax rate has been reduced, the reliefs increased, albeit marginal, and the minimum income for one to fall within a taxable bracket increased. However, these measures cannot reach the lower income groups. Hence, cash handouts are still seen as the most efficient manner of putting cash in the pockets of the B40.
The good thing about BR1M is almost all of the money is likely to flow back into the economy, rather than being put away as savings.

Start-ups and SMEs
Given the importance of SMEs to the economy, I see measures introduced in almost every budget. The reduction in initial tax rates for the first RM500,000 of income from 19% to 18% is certainly welcome. Also, rewarding successful SMEs through lower tax rates will only spur them to reinvest further in the business, and potentially expand beyond our shores.
Have we done enough to encourage start-ups and SMEs? Probably not – as a nation we still lag behind successful economies in the region. What would have been good is more radical measures to promote innovation and R&D. A lot of start-up companies will not be profitable. A forward-thinking idea would be to give cash rebates for innovation and R&D.

Improving digital connectivity
The concept of Digital Free Zone sounds exciting, and hopefully will be a game changer for us. The MSC initiative certainly propelled us forward into the technology space, and it’s time we had another catalyst to make us an attractive destination as a digital hub.

Collection Intelligence Arrangement (CIA)
The announcement relating to CIA is timely, in this day and age where cross-border transparency and information sharing is already happening. Sharing between domestic agencies including Inland Revenue Board, Companies’ Commission and Royal Malaysian Customs Department is important in enhancing enforcement and increasing compliance.

Budget 2017 certainly addresses the broad needs of the rakyat in terms of improving their standard of living. This was expected as the needs of the rakyat will have to be prioritised as we come closer to the general elections. However, I would have liked to see clearer long-term measures on how we continue our growth trajectory to propel us forward as a high income nation.
Attracting foreign and domestic investments in strategic sectors, innovation and R&D – these are all key ingredients for sustainable growth. Hopefully, the 2050 National Transformation (TN50) will provide us a clearer roadmap in bringing us on par with more successful economies.