Budget 2019

Real gross domestic product (GDP) is forecast to expand 4.8% for the full year 2018, a slight dip compared to the 4.9% growth seen in the first six months of the year. Growth is forecast to pick up slightly to 4.9% in 2019. This puts the economy’s growth at the midway point of the government’s target annual GDP growth range of 4.5% to 5.5% for the period from 2018 to 2020, which was set out in the mid-term review of the Eleventh Malaysia Plan unveiled on 18 October 2018.

Private sector expenditure will continue to be the key driver of growth for the economy, with sustained private sector expenditure at 6.5% for 2018 (2019: 6.4%). This is expected to cushion the impact of lower public sector spending in 2018 and 2019 (+0.1% and -0.9% respectively) as the government moves to review and re-prioritise expenditure and rein in the fiscal deficit.

On the supply side, growth will be be driven by the services and manufacturing sectors, which account for 55.3% and 23% share of 2018 GDP respectively. The services sector will grow by 6.3% in 2018 (2019: 5.9%), while the manufacturing sector is estimated to grow by 4.9% (2019: 4.7%).

Despite the projected resilient economic performance, risks to growth remain, resulting from heightening global uncertainties. These include rising trade conflict, volatility in global financial markets and oil prices and geopolitical tension.

_{Sources: Economic Outlook 2019;  Mid-term review of the Eleventh Malaysia Plan}

In 2018, inflation is expected to grow at a moderate pace, between 1.5% and 2.5%, mainly due to fixed RON95 petrol and diesel prices and the implementation of zero-rated goods and services tax (GST) from June to August 2018. Inflation is projected to increase between 2.5% and 3.5% as a result of the base effect of the GST zerorisation followed by the implementation of sales and services tax (SST).

For both 2018 and 2019, the labour market is forecast to remain favourable, with the unemployment rate holding steady at 3.3% for both years. This is a slight improvement compared to the 3.4% seen for the first half of 2018. The labour force is projected to grow by 2.2% in 2018 to 15.3 million persons (2019: 1.9%, 15.6 million persons).

The revised Eleventh Malaysia Plan projects full employment and stable labour market conditions for the remaining period up to 2020, with the unemployment rate below 3.5%. Inflation rate will be contained between 2% and 3% per annum throughout the period.

Gross national income per capita is expected to reach RM47,720 (US$11,700) in 2020, approximately 6% below the estimated minimum income threshold of a high-income nation. The country is expected to achieve this income threshold by 2024, with aspirations for earlier realisation of this target if growth conditions improve significantly.

_{Sources:Economic Outlook 2019;  Mid-term review of the Eleventh Malaysia Plan}

Fiscal deficit as a share of GDP for 2018 has been revised upward to 3.7% (RM53.3 billion). The deficit is expected to reduce to RM52.1 billion or 3.4% of GDP in 2019.

Federal government’s revenue in 2018 is expected to increase 7.3% to RM236.5 billion, contributed by higher direct tax collections and non-tax revenue.These helped offset the withdrawal of goods and services tax (GST) and the 3-month tax holiday during the year, which resulted in an estimated forgone revenue of RM21 billion. The main contributors to direct tax collections are companies income tax, followed by individual and petroleum income tax.

In 2019, federal government’s revenue is forecast at RM261.8 billion, or 17.1% of GDP. Tax revenue is expected to be the key component in overall revenue, notwithstanding the significant reduction in consumption based tax.

A total of RM314.6 billion is budgeted for federal government’s expenditure in 2019. RM259.9 billion will be allocated for OE, a year-on-year increase of 10.4%, with the largest allocation for emoluments (31.6%), followed by debt service charges (12.7%). The remaining RM54.7 billion will be allocated  for DE, a marginal decrease of 0.4% from 2018.

_{Source: Fiscal Outlook and Federal Government Revenue Estimates 2019}

Key tax proposals:

• Special voluntary disclosure programme: Reduced penalty rates for voluntary disclosure of unreported/undeclared income, gains from disposal of real property and stamp duty for instruments not duly stamped (3 November 2018 to 30 June 2019). Increased penalty rates of 80% - 100% for voluntary disclosures after 30 June 2019.

• Service tax on imported services including online services: Service tax to apply to imported services including online services e.g. downloaded software, music,video and digital advertising (B2B - from 1 January 2019, B2C - from 1 January 2020)

• Increase in Real Property Gains Tax (RPGT) rates: Existing RPGT rates for disposals made after 5 years to be increased by 5% (from 1 January 2019)

• Reduction of tax rate for SMEs: The 18% preferential tax rate for the first RM500,000 chargeable income is to be reduced to 17% (from YA2019)

• Increase in stamp duty rate for real properties: Stamp duty rate applicable on value of property in excess of RM1 million to be increased from 3% to 4% (from 1 January 2019)

   

  _{Source: 2019 Budget}

The following are selected budget proposals that will impact corporates from the 2019 Budget:

• A RM3 billion Industry Digitalisation Fund with a subsidised interest rate of 2% under Bank Pembangunan Malaysia Berhad will be created to accelerate the adoption of smart technology consisting of driving automation, robotics and artificial intelligence in the industry

• Government-linked investment funds will allocate RM2 billion in matching funds to co-invest with private equity and venture capital funds to support new technology developments and ensure sufficient funding for entrepreneurs

• To incentivise investments in green technology, a RM2 billion Green Technology Scheme will be made available at selected commercial banks, where the government will subsidise the interest cost by 2% for the first five years

• To reduce wage disparity, regulations will be implemented requiring public-listed companies in Malaysia to publicly disclose key pay metrics each year in their annual report

• Increasing women participation to 30% at leadership and decision making levels in companies and organisations

• Ensuring the objective of 30% women participation in the Board of Directors is achieved by 2020

_{Source: 2019 Budget}

The following are selected budget proposals that will impact individuals from the 2019 Budget:

• Raise minimum wage to RM1,100 starting 1 January 2019 for the whole of Malaysia

• “Bantuan Sara Hidup” cash grants:

  • Households with monthly income of RM2,000 and below will receive RM1,000

  • Households with monthly income between RM2,001 and RM3,000 will receive RM750

  • Households with monthly income between RM3,001 and RM4,000 will receive RM500

  • Additional top up of RM120 per child 18 years old and below or who is disabled, up to a maximum of four children

• Targeted subsidy for vehicle owners with engine capacity of 1500cc and motorcycle owners of 125cc or less:

  • RON95 petrol subsidy of at least RM0.30 per litre, limited to 100 litres per month for cars and 40 litres per month for motorcycles

• Introduction of a RM100 unlimited public transport pass, to kick off initially on the RapidKL rail and bus network on 1 January 2019 to encourage public transport adoption

• REHDA will reduce the price of new homes by 10% in housing categories that are not price-controlled

• A fund amounting to RM1 billion will be established by Bank Negara Malaysia to help the lower income group earning not more than RM2,300 per month ot purchase affordable homes priced up to RM150,000

_{Source: 2019 Budget}