Budget 2019: New technology to drive dynamic economy
By Digital News Asia November 5, 2018
- SC will put in place a regulatory framework to regulate digital asset exchanges and ICOs
- The Digital Economy hinges on a conducive ecosystems and a holistic infrastructure
THE Securities Commission Malaysia
Budget 2019 has identified key priorities to support the transition of the Malaysian economy towards a more balanced, sustainable and inclusive growth. The Securities Commission Malaysia (SC) welcomes these measures that will enable a wider community to benefit from the capital market.
Technology has encouraged product innovation and created new ways and means of doing business in an age of digital disruption.
The SC will put in place a regulatory framework to regulate digital asset exchanges and initial coin offerings (ICOs) to facilitate a fair and orderly development of this nascent market. These regulations are expected to come into effect in the first quarter of 2019.
A Co-Investment Fund (CIF), with a grant of RM50 million, will be established to enable the Government to co-invest with private investors in financing the development of new businesses, especially for the Micro, Small and Medium Enterprise (MSME) segment, through equity crowdfunding (ECF) and peer-to-peer (P2P) financing platforms.
The introduction of property crowdfunding platforms, which will be regulated by the SC under a crowdfunding framework, will provide alternative financing options to first-time home buyers and give investors exposure to the property sector through smaller investment amounts. This initiative forms part of a series of Budget 2019 measures to facilitate home ownership.
The SC will work with the relevant stakeholders to operationalise these measures. Further details of these measures will be announced in due course.
Budget 2019 also announced the establishment of a Special Committee on Islamic Finance led by the Ministry of Finance. Together with the extension of tax incentives for sukuk ijarah and wakalah, this will reinforce Malaysia’s position as a global leader in Islamic finance. Additionally, the extension of incentives for retail sukuk and bonds will encourage more issuances of such instruments and attract greater retail participation in the capital market.
Cyberview Sdn Bhd
We are delighted that the 2019 budget announcement focuses on reinstating Malaysia’s economic position as Harimau Asia through strategic initiatives and allocations that contribute to cultivating the country’s entrepreneurial culture and ensuring the well-being of Malaysians alike, says Cyberview Sdn Bhd managing director Mohd Najib Ibrahim.
It is encouraging to hear the government’s recognition for an improved collaborative ecosystem for a sustainable and dynamic digital economy. At Cyberview, our mandate to transform Cyberjaya and its communities into an innovation-based economic hub is similarly based on an ecosystem built on collaborative innovation, that is necessary in leading the best solutions and practices in the industry.
We welcome the government’s plans to unleash the power of a new economy in Malaysia through the National Policy on Industry 4.0 (Industry4WRD) and fund allocations to accelerate the growth of the manufacturing industry. We are also thrilled with the allocation of RM3 billion on the Industry Digitalisation Transformation Fund through the Malaysian Development Bank (BPMP) that can make a big difference to the development of robotics and AI in the country.
Cyberview recognises the potential of Industry 4.0 in Malaysia, which is why we encourage startups from the robotics and AI fields, especially those at the precipice of commercialisation, to participate in our Cyberview Living Lab Accelerator programme. It is no secret that robotics is a focal area of technology for innovation leaders in the manufacturing industry. In fact, the global industrial robotics space is estimated at US$25.6 billion in 2013 and expected to reach a whopping US$40 billion by 2020.
The pursuit to greater economic productivity requires startups and entrepreneurs to develop valuable, futuristic products and solutions through disruptive technology enablers. It also requires converging innovators from all walks of life to deliver strategic creation and commercialisation of IPs. In line with this goal, we will be launching our Futurise Centre in early 2019, aimed at helping startups and entrepreneurs to future-proof industries, reinvent business models and rethink solution innovation.
The Digital Economy continues to be a key driver of growth. It hinges on several key imperatives, including conducive ecosystems and a holistic infrastructure. We are confident that the allocation of RM1 billion to the National Fibre Connectivity Plan to develop the country's broadband infrastructure, will allow for higher adoption of disruptive technologies among businesses in Cyberjaya as well as the rest of the country.
Cyberjaya’s rise as a model smart city is in line with the nation’s goal of growing the country’s digital economy. We believe that these strategic efforts and fund allocations by the government will support our initiatives at Cyberview in increasing Cyberjaya’s operational efficiency, improving the quality of life for the people of the city and contributing to Malaysia’s economy.
Ernst & Young Tax Consultants Sdn Bhd
The new Government has had the unenviable task of managing a higher than expected Government debt against a continued budget deficit trend and rumoured risk of a credit rating downgrade. Against this backdrop, we believe that the proposed measures in the Budget are commendable, particularly the focus on encouraging the private sector to spur growth, says Ernst & Young Tax Consultants partner and Malaysia tax leader Amarjeet Singh.
The Government is embracing the digital economy with the following measures introduced to promote development:-
- RM2 billion allocated by Government-linked investment funds for co-investment with private equity and VC funds into strategic sectors and new growth areas
- Regulatory framework for alternative financing platforms via equity crowd-funding and peer-to-peer financing
The Government is also seeking to collect its fair share of taxes from the digital economy through the imposition of service tax on imported online services, effective Jan 1, 2020.
Other imported services will also be subjected to Service Tax effective Jan 1, 2019, to level the playing field between local and foreign service providers.
We also note several measures by the Government to address the property overhang including the bold idea of introducing a crowd-funding platform as an alternative source of financing for first-time home buyers, and the expansion of certain stamp duty exemptions for first-time homebuyers.
For businesses, the good news is that the Government has addressed certain concerns with the Sales and Service Tax (SST) regime, by proposing service tax exemptions for specific business-to-business transactions and a sales tax credit system to prevent compounded taxation.
The Government will also grant private sector access to facilities, scientific equipment and research data and introduce several incentives to promote SME investment in automation and modernization. On the other hand, businesses face a proposal to limit carry-forward of losses and allowances to seven years. Similar provisions exist in neighbouring countries such as Indonesia, Thailand and the Philippines. However, it is unclear how this will be applied to existing losses and allowances.
On tax administration, a special programme will be introduced to encourage taxpayers to declare unreported income within a limited time period to enjoy low penalty rates, after which penalty rates will significantly increase (to up to 300% of the undercharged tax) from June 30, 2019. Other countries such as Indonesia and Thailand have introduced similar tax amnesty programs to positive effect. It is expected that this measure will encourage voluntary disclosures and improve tax collection in the short term.
Ng Sue Lynn, executive director of Indirect Tax at KPMG Tax Services, welcomed the proposal to tax imported services.
“This is a welcomed move as it can ensure that local service providers such as architects, graphic designers and software developers can compete on a more level playing field with foreign service providers. Currently, foreign service providers providing similar services do not need to charge Malaysian service tax, unlike the local service providers who are Service Tax registered.
"Based on the proposal, the mechanism may be similar to the previous Goods and Services Tax (GST) regime where the onus is on the recipient of the services (which are businesses) to account, declare and report the tax. It remains to be seen what the reporting mechanism is for businesses who are currently not registered under the Service Tax regime,” said Ng.
The Finance Minister also mentioned that foreign suppliers who provide digital products and services to consumers will be required to register with the Royal Malaysian Customs Department (RMCD) from Jan 1, 2020.
Ng commented: “This move to tax the digital economy is in line with the intention of other countries and it is a bold move as Malaysia will be one of the first to introduce such system. There are further areas that need to be clarified such as how the foreign service providers will register with RMCD, and what enforcement rules and reporting mechanism are in place. It is noted that a new provision will be introduced in the Service Tax Act 2018 to cover this. As this proposal is proposed to be effective from Jan 1, 2020, the RMCD has one year to study, analyse and come up with an efficient mechanism.”
KPMG further notes that the Service Tax exemptions to specific services provided by registered businesses to other registered businesses will address the Service Tax cascading issue that has been the concern of a lot of businesses, since the Sales Tax and Service Tax was implemented on Sept 1, 2018.
“This means that the Government is aware of the issues faced by businesses and is trying to address them. However, the conditions for the exemptions needs to be seen to ensure it is feasible to businesses,” said Ng.
She added: “To alleviate the compounding of Sales Tax and decrease the cost of doing business, the credit system for small manufacturers who purchase their products from importers (and thus could not claim the Sales Tax exemption under the existing legislation) instead of directly from registered manufacturers is another welcome relief. The next steps that a lot of the small manufacturers will want to know are the conditions attached as well as the reporting mechanism, as the credit mechanism will be introduced from Jan 1, 2019.”