FIRST FOCUS: BOOSTING INVESTMENT ACTIVITY
16. Malaysia’s economic growth will continue to be driven by foreign and domestic direct investment.
In the first half of 2012, private investment rose to RM75.3 billion compared with RM59.8 billion during the same period of 2011.
This trend is expected to continue in 2013 with private investment increasing to RM148.4 billion.
17. The Government will continue to accelerate the implementation of the 12 National Key Economic Areas (NKEAs).
In 2013, a sum of RM3 billion is allocated for the implementation of entry point projects (EPPs).
This includes RM1.5 billion for agriculture projects such as oil palm, rubber, high-value herbs and paddy.
A total of RM500 million will be allocated for the River of Life project for the beautification of the Klang River.
Meanwhile, an additional RM300 million is provided for replacement of water pipelines and sewage to improve water supply and sewage system.
Promoting Domestic Investment
18. To encourage domestic investment and accelerate the participation of Malaysian companies in the global supply chain, the Government has established the Domestic Investment Strategic Fund worth RM1 billion under the Malaysian Investment Development Authority (MIDA).
The fund aims to leverage outsourcing activities and acquisition of technology by Malaysian companies.
Additionally, the Government has reintroduced the incentive for the acquisition of foreign companies and a special tax rate to encourage local service providers to merge into bigger entities.
Intensifying Small and Medium Enterprises
19. Small and medium enterprises (SMEs) have played an important role in supporting the nation’s economic transformation.
To accelerate the growth of SME and the expansion of industrial areas nationwide, a fund of RM1 billion will be provided under the SME Development Scheme to be managed by the SME Bank.
The measure will facilitate SMEs’ access to financing to further develop their businesses.
20. This is in line with the recently launched SME Masterplan (2012 – 2020), which will be the game-changer in accelerating SME growth through innovation and productivity.
The Masterplan outlines the implementation of 32 initiatives including six high-impact programmes (HIP) with an allocation of RM30 million.
21. To further promote the halal industry, the Government is committed to developing high-impact halal products for export.
In this regard, the SME Bank with the cooperation of the Islamic Development Bank (IDB) will provide RM200 million to the Halal Industry Fund to finance the working capital of participating SMEs.
22. Currently, there are 1.5 million hawkers and small businesses operating traditionally, and without fixed income.
Recognising their constraints, particularly in the event of injury, disability and death, the Government proposes a group insurance coverage scheme for hawkers and owners of small businesses registered with the Companies Commission of Malaysia.
The scheme will provide maximum coverage of up to RM5,000.
For the first time, the Government will finance this Scheme with an allocation of RM16 million a year.
23. In addition, Perbadanan Nasional Berhad (PNS) will introduce the Business in Transformation programme to support efforts to modernise the operations of hawkers and small businesses to higher standards and competitiveness through the licensing or franchising model.
The programme will provide guidance and advisory services on new business concepts such as mobile shops, kiosks and online businesses.
For this, PNS will provide soft loans to hawkers and small businesses of up to RM25,000 for licensees and RM500,000 for licensors.
Malaysia as Oil and Gas Hub
24. We are blessed with valuable mineral resources, such as oil and natural gas.
The Government aims to transform Malaysia from a producer to a global integrated trading hub for oil and gas.
25. Therefore, the Government has undertaken several strategic measures to enhance the nation’s capability, particularly in providing an ecosystem to support the development of the chain of refining, storage and trading.
To support the participation of private operators in the development of the oil and gas industry, various special tax incentives and non-tax incentives have been provided.
These include the cost of land acquisition and financial assistance as a tipping point for public-private partnership projects, 100% income tax exemption for a period of ten years, exemption of withholding tax and exemption of stamp duty.
26. For investment in the refinery activities on petroleum products, Investment Tax Allowance of 100% for the period of 10 years will be provided to qualified companies.
In this regard, various investment totalling USD20 billion in oil and gas projects have been implemented in 2012.
These projects include the PETRONAS Refinery and Petrochemical Integrated Development (RAPID), oil and gas storage Terminal in Johor, Regasification Plant in Melaka as well as oil and gas terminal in Sipitang, Sabah.
27. The Government also launched the Global Incentive for Trading (GIFT) programme in 2011 with tax incentive at the rate of 3%.
In line with the global demand for liquefied natural gas (LNG) which is expected to reach 400 million tonnes a year in 2025, the GIFT programme will be enhanced with a 100% income tax exemption on statutory income for the first 3 years of operations for LNG trading companies.
Commodity trading approved under GIFT will be extended to include other commodities such as agriculture, refined raw materials, base minerals and chemicals.
Intensifying Tourism Sector
28. The tourism industry is one of the key economic growth sectors, contributing almost 12% to GDP.
Total revenue generated from the tourism sector is estimated to increase to RM62 billion in 2012.
In conjunction with Visit Malaysia Year 2013/2014, the Government has allocated RM358 million under development expenditure, an increase of 42%, to target 26.8 million tourist arrivals.
In addition, for tour operators who bring in at least 750 foreign tourists or handle 1,500 local tourists a year, the Government proposes that the income tax exemption be extended for 3 years.
Enhancing Agricultural Activity
29. The Government continues to give priority to the agriculture sector to enhance the national income and ensure food security.
For this, a sum of RM5.8 billion is allocated to the Ministry of Agriculture and Agro-Based Industry.
30. The Government will also allocate RM30 million for agricultural development programmes, including high-technology applications in fruit and vegetable production, increase the supply of high-quality seedlings, price stabilisation through direct selling from farms, establishment of fish markets for the rakyat as well as improving agricultural training institutions.
The Government will also allocate RM75 million to increase the output of food and health products.
31. For the plantation subsector, RM432 million is allocated under the NKEA for oil palm replanting programmes.
The initiative will increase the annual oil palm yield to 26.2 tonnes per hectare in 2020 compared with 21 tonnes per hectare currently.
In addition, RM127 million is allocated for the development of high-value oleo derivatives to transform the downstream industry towards higher production of derivatives.
Sustaining Food Security
32. To ensure food security, existing paddy granaries will be strengthened through an integrated and systematic paddy management system.
Additionally, four new paddy granaries will be developed and expanded in Kota Belud, Batang Lupar, Rompin and Pekan.
Currently, the 389,000 hectares of cultivated paddy granaries are able to produce up to 1.8 million tonnes.
With an expenditure of RM140 million, the four new paddy granaries with acreage of 19,000 hectares and involving 12,237 farmers are expected to produce 104 tonnes.
Safeguarding the Farmers and Fishermen
33. The Government appreciates the contribution of fishermen and will ensure that their socio-economic status and income are enhanced.
Currently, the Government provides a living allowance of RM200 per month, benefiting 55,000 registered fishermen.
The Government also provides an incentive ranging from RM0.10 to RM0.20 per kilogramme to encourage fish landings at licensed jetties nationwide.
34. The Government has introduced the Fishermen Insurance Scheme with a maximum coverage of RM100,000.
To continue providing these benefits, the Government will allocate RM230 million in 2013 as an incentive for fish landing as well as payment of living allowances for the fishermen.
In addition, the allocation of RM300 million provided in the 2012 Budget for the building and refurbishment of fishermen’s houses are currently underway.
35. The Government will continue to provide subsidies and incentives amounting to RM2.4 billion to assist farmers in reducing cost of production.
The assistance comprises subsidies and incentives for paddy production including subsidies on paddy price (RM480 million) and paddy fertilisers (RM465 million); incentives to increase paddy yield (RM80 million) and paddy production (RM563 million); and subsidies on price of rice (RM528 million) and high-quality paddy seeds (RM85 million).
36. In line with the Government’s commitment to safeguard the rakyat’s welfare, particularly paddy farmers, the Government will introduce for the first time a Paddy Takaful Coverage Scheme (SPTP).
The scheme is expected to benefit 172,000 paddy farmers who own fields less than 10 hectares.
Total compensation to be received by each farmer is estimated at RM13,000. The Government will initially allocate RM50 million for this scheme.
37. The Government will continue the AZAM Tani project which was introduced in 2011.
The programme has successfully lifted 1,234 families out of poverty and increased their average income between RM200 and RM2,000 per month.
Several participants of this programme have also successfully increased their income to more than RM10,000 per month.
To further strengthen this initiative, RM41 million will be provided to benefit 6,730 participants.
Stimulating the Capital and Financial Markets
38. The Malaysian capital market has expanded rapidly despite uncertainties in the global economy.
Malaysia also continues to dominate sukuk issuance accounting for 71% or RM171 billion of the total global sukuk issuance in the first seven months of 2012.
This is proven by the single largest sukuk issuance by PLUS Berhad worth RM30.6 billion.
39. In addition, the fund management and unit trust industry registered a strong growth in the first half of 2012 with managed assets increasing to RM451.9 billion and a net asset value of RM277.8 billion.
40. In 2012, the domestic equity market registered a strong growth with Initial Public Offerings (IPOs) worth RM17.4 billion.
This reflected a sharp increase of 162% compared with 2011. History was created when two out of the three largest global IPOs were raised domestically, namely Felda Global Ventures Holdings Berhad (FGVH) with an issuance of RM9.9 billion and IHH Healthcare Berhad with RM6.3 billion.
In addition, ASTRO which will be listed in October 2012, is expected to be the largest issuance.
41. To further stimulate the capital and equity market, the Securities Commission (SC) will provide a framework on the issuance of AgroSukuk for companies engaged in the agriculture sector, following the successful listing of FGVH.
Through instruments such as the AgroSukuk, capital can be raised to finance agricultural companies and agro-based industries.
To encourage the issuance of AgroSukuk, the Government proposes that expenses for the issuance of AgroSukuk be given a double deduction for a period of four years effective from year of assessment 2012 to 2015.
42. Apart from institutional investors, the Government also encourages retail investors to participate in the capital market.
For this purpose, the SC has formulated a framework for retail bond and sukuk issuances to enable investors to acquire stakes in the bond and sukuk markets.
For a start, DanaInfra Nasional Berhad will issue retail bonds worth RM300 million by end-2012 to finance MRT development projects.
43. To encourage companies to issue retail bonds and retail sukuk, the Government proposes that additional expenses incurred in the issuance of retail bonds and retail sukuk be given a double deduction for a period of four years effective from year of assessment 2012 to 2015.
At the same time, individual investors are also given stamp duty exemption on instruments relating to the transactions of retail bonds and retail sukuk.
44. To ensure an effective and holistic promotion of the Malaysian capital market internationally, the SC will establish a Capital Market Promotion Centre.
The centre will adopt an integrated approach across various segments in the capital market and provide consistent initiatives to position Malaysia as a centre of investment and fund raising.
45. The SC will introduce the Graduate Representative Programme to increase the supply of professionals to support growth of the capital market.
The programme will be implemented in collaboration with the private sector to train 1,000 graduates to meet the needs of the securities and derivatives industry.
Promoting Business Trust
46. Business operations through trust entities have certain advantages, particularly in enhancing their ability to obtain financial resources based on assets owned.
In this regard, the Government has amended the Capital Market and Services Act 2007 to provide an option for carrying out business operations through a new structure, known as a business trust.
47. In line with this, the Government proposes a business trust be given the same tax treatment as a company.
To encourage the development of business trusts, it is proposed that the transfer of any business, asset and real property to a business trust be given stamp duty exemption and real property gains tax exemption at the early stage of the establishment of a business trust.
48. The Government has established Danajamin Nasional Berhad (Danajamin) to provide guarantee facilities to viable companies to obtain funds from the bond market at a reasonable cost.
Danajamin has approved guarantees totalling RM9.3 billion to 30 companies, resulting in the issuance of bonds and sukuk worth RM4.2 billion.
This has enabled companies to generate economic activities in various sectors, including real estate, infrastructure, plantation, oil and gas, construction, manufacturing and aviation.
49. To provide companies with greater access to the capital market, the Government will allocate an additional RM400 million to Danajamin for the next two years.
The additional fund will multiply the issuance value between RM4 billion and RM6 billion.
50. The Government has also announced the establishment of the Capital Market Foundation as a concerted effort towards increasing the competency and capability of companies to compete in a more dynamic capital market.
The Foundation focuses on three main areas, namely SME development; promotion and support of innovative products; and human capital development.
For this, RM100 million will be provided to the Foundation through the Capital Market Development Fund under the SC.
51. As an initiative to promote Malaysia as an international financial hub and to attract FDI, the Government launched the Tun Razak Exchange (TRX) on 30 July 2012 with a gross development value of RM26 billion.
TRX will provide new investment opportunities by connecting the business community with the global market.
TRX is expected to attract 250 international financial services companies and offer 40,000 knowledge and skilled job opportunities.
52. To encourage major international financial institutions to make Kuala Lumpur a preferred investment centre, income tax exemption for 10 years for TRX-status companies, stamp duty exemption, industrial building allowance and accelerated capital allowance for TRX Marquee-status companies as well as tax exemption for property developers are being provided.
The development of TRX is on schedule.
Meanwhile, the realignment of existing utilities on the TRX site is well underway and is expected to be completed in October 2012.
53. The Government recognises the State Islamic Religious Council as the sole trustee for all wakaf and wakaf funds in respective states.
Wakaf institutions in Malaysia not only focus on land development but also on corporate wakaf in the form of cash, shares and other financial instruments.
In line with this, the Malaysian Wakaf Foundation under the Department of Awqaf, Zakat and Hajj (JAWHAR) will be responsible to formulate the Corporate Wakaf master plan, taking into consideration the State Islamic Religious Council legislative structure.
The master plan will be the platform for the development of Corporate Wakaf in Malaysia.
Developing Bumiputera Entrepreneurs
54. The Government is committed to ensuring Bumiputera companies are able to compete on a level playing field in acquiring ownership of large companies, creating high-income employment as well as investing in key economic sectors.
In 2010, Bumiputera equity increased to 23% compared with 22% in 2008.
One of the measures is to increase participation of Bumiputera companies in the first alignment of the MRT project.
The participation of Bumiputera companies in high-impact projects such as MRT will further enhance the capability and expertise of local Bumiputera companies.
A sum of RM9 billion or 43% of the total infrastructure cost of the MRT project has been allocated to Bumiputera companies.
55. Efforts will also be undertaken to assist Bumiputera SMEs to expand and increase their equity holdings in the economic sector.
In line with this, the SME Bank will provide RM1 billion to the Bumiputera Financing Fund.
The fund will assist local SMEs to finance the acquisition of GLC subsidiaries engaged in non-core activities.
To date, two GLCs have identified their potential subsidiaries for divestment to Bumiputera investors.
56. The Government has also introduced a fund worth RM10 billion under the Working Capital Guarantee Scheme for SMEs to facilitate access to working capital.
The scheme guarantees up to a maximum of RM2.5 million to qualified companies.
Currently, RM900 million is still available for Bumiputera companies under this scheme. To attract more Bumiputera companies to benefit from this scheme, the Government will extend the duration of this scheme until 31 December 2013, expand this scheme to High-Performing Bumiputera (TERAS) companies and increase the companies’ shareholders fund eligibility from RM10 million to RM20 million.
57. Small-scale entrepreneurs, particularly Bumiputera entrepreneurs lack quick and easy access to loan facilities.
With the establishment of Tabung Ekonomi Kumpulan Usaha Niaga (TEKUN), these entrepreneurs are capable of commencing and developing their businesses.
To date, TEKUN has extended loans totalling RM2.24 billion to 224,175 entrepreneurs nationwide, including a total of RM34.5 million to 4,212 Malaysian-Indian entrepreneurs under Skim Pembangunan Usahawan Masyarakat India.
In 2013, the Government provides an allocation of RM350 million to TEKUN including RM50 million to the Malaysian Indian community.