Malaysia’s Budget Highlights 2021

On 6 November 2020, the Minister of Finance Tengku Datuk Seri Zafrul Abdul Tengku Abdul Aziz unveiled the annual budget speech for 2021, which is the first Budget tabled by Mr Muhyddin’s administration (the “Budget”). The expansionary Budget targets domestic activity amid the backdrop of the unprecedented economic challenge presented by the COVID- 19 pandemic.

The Budget 2021 represents the 5th R in the government’s 6R strategy, namely Resolve, Resilience, Restart, Recovery, Revitalise, and Reform. The new Budget 2021 therefore continues the previous 2020 Economic Stimulus Package (MYR 20 billion), PRIHATIN (MYR 250 billion), PRIHATIN for SMEs (MYR 10 billion) and PENJANA (MYR 35 billion).

The Budget 2021 is worth MYR 322.54, equivalent to 20.6% of the gross domestic product (“GDP”), and is the largest budget ever announced in Malaysia. The Budget is allocated as follows:

• Operational expenditure: MYR 236.54 billion;
• Development expenditure: MYR 69 billion; and
• COVID-19 Fund: MYR 17 billion.

Despite the large fiscal deficit in 2020 (6% of the GDP) and the projected fiscal deficit for 2021 being 5.4% of the GDP, Malaysia’s economy is expected to respond positively to the government’s 6R strategy and see growth of 6.5 to 7.5% next year. In 2021, government revenue is expected to be MYR 236.9 billion (up 4.2%). The Malaysian government has therefore tabled this Budget 2021 as targeting the protection of the earnings, welfare and financial recovery of both individuals and businesses, without introducing any new taxes to bridge the 2020 deficit.

Three pillars: Rakyat’s well-being, businesses continuity and economic resilience

The Budget is formulated on the government’s prevailing approach to dealing with the pandemic and its economic consequences, which is summarised by three pillars: Rakyat’s well-being, businesses continuity and economic resilience. According to the Finance Minister, the Budget strives to balance healthcare capacity needs, while building upon the current economic recovery momentum and developing better resilience for the future. Among the proposals announced in the Budget Speech are the following significant measures:

• For individuals

Emphasis is placed on the well-being of the Rakyat and measures are aimed at helping individuals recover from the impact of the pandemic through tax relief, increased training, creation of job opportunities and financial aid. Notably, the Ministry of Education receives the largest allocation of MYR 50.4 billion or 15.6% of the total Government expenditure, thus enhancing access to quality education. Other key strategies include a reduction in personal income tax, targeted wage subsidies, MySTEP (a short-term employment programme), improving digital connectivity and providing significant funding for health (both physical and mental) programmes, such as MySalam and the Healthy Malaysia National Agenda.

• For businesses

The focus of the Government will be to build on the continuity of the now-evolved business environment through facilitating access to investment funds and financing, in addition to empowering key sectors, such as agriculture, commodity, tourism and technology. Key measures include encouraging the production of locally manufactured products, micro credit financing worth nearly MYR 1.2 billion and significant funding for the tourism sector infrastructure, including MYR 50 million to provide training and placements for airline company employees.

• For the economy

The third goal of the Budget is economic resilience and it will be aligned with the priorities of the Twelfth Malaysian Plan and the Shared Prosperity Vision 2030. Despite the lower revised revenue, the government has increased expenditure to finance the stimulus package and economic recovery. In addition to the expansionary budget, key strategies include focusing on sustainability of the government revenue (the Budget is aligned with the 17 Sustainable Development Goals) and allocating funding for regional development.

In the table within the PDF you will find some of the major tax measures announced in the Budget 2021 for businesses and individuals. These
tax measures are only proposals and remain subject to the vote of the Malaysian Parliament.

• open PDF

The Malaysian government have also proposed the following non-tax related measures in the Budget 2021, which are of particular interest for businesses and employers:

• Extended moratorium and other forms of repayment assistance: Starting December 2020, banks will enhance the Targeted Loan Repayment Assistance (“TRA”) to the bottom 40% of income earners (“B40”) borrowers who are recipients of the Household Living Aid (“BSH”) or Bantuan Prihatin Rakyat (“BPR”), and to micro enterprises with loans of up to MYR 150,000. Borrowers in this category will be given the following options:
  • Option 1: A moratorium on their instalments for a period of three months; or
  • Option 2: Reduce their monthly repayment by 50% for a period of six months.

Eligible borrowers will only need to contact their banks to choose the options and complete the documentation.

The application process for repayment assistance for the middle 40% of income earners (“M40”) borrowers, will be simplified. Borrowers would only need to make a selfdeclaration of the reduction in income in order to secure the repayment assistance.

• Reduced minimum Employee Provident Fund (“EPF”) contribution: from January 2021, the minimum employee EPF contribution rate is reduced from 11% to 9% for a period of 12 months to increase take-home pay.
• Enhanced Penjana Kerjaya Incentive (Hiring Incentive): MYR 2 billion is allocated to enhance the hiring incentive programme under PERKESO, which is now known as PenjanaKerjaya:
  • Incentive for employees earning MYR 1,500 and above will be enhanced from a flat rate of MYR 800 per month to 40% of monthly income, subject to a maximum incentive of MYR 4,000;
  • To encourage employment for the disabled, long-term unemployed, and retrenched workers, employers will be given an additional incentive equivalent to 20% of the employee’s monthly income making the total incentive to employers’ amount to 60%; and
  • For sectors with a high reliance on foreign workers, such as construction and plantations, a special incentive of 60% of monthly wages will be provided whereby 40% will be channelled to the employer while 20% will be channelled as a wage top-up to the local worker replacing the foreign worker.
  • The above three incentives will be given for a period of six months.
  • Finally, for those employed under the PenjanaKerjaya, the maximum training rate which can be claimed by employers will be increased from MYR 4,000 to 7,000 to enable workers to take up high skilled training and professional certifications.
• Targeted Wage Subsidy: MYR 1.5 billion is allocated to extending the implementation of the Wage Subsidy Program for another three months, specifically targeting the tourism sector, which includes the retail sector, at a rate of MYR 600 per month for workers earning MYR 4,000 and below. Further, the limit of 200 employees per application is increased to 500 employees.

Furthermore, the Budget 2021 has also unveiled the allocation of the government’s revenue to specific sectors, including the agriculture sector, the commodity sector and the tourism industry:

• The agriculture sector is projected to grow at 4.7% of the GDP next year. The government has allocated funding for several key initiatives, including:
  • MYR 30 million for extending the Community Farming Programme to the semi-urban and rural communities. This programme provides equipment up to MYR 500 per individual or MYR 50,000 per community;
  • MYR 50 million for the implementation of the Organic Agriculture Project as a community project;
  • MYR 10 million in the form of matching grants up to MYR 30,000 to the Pertubuhan Peladang Kawasan (“PPK”) for the implementation of the e-Satellite Farm Programme for the purpose of purchasing agriculture equipment;
  • Agrobank will provide MYR 150 million to finance the Vessel Modernisation and Capture Mechanisation Programme of up to MYR 5 million at a rate of 3.5% for a period of 10 years to fishermen in zones A and B to upgrade equipment, nets and boats;
  • Agrobank will provide MYR 60 million towards the Agrofood Value Chain Modernisation Programme, which funds up to MYR 1 million at a rate of 3.5% for a period of 10 years for agricultural entrepreneurs to procure equipment and technology based on IR4.0;
  • MYR 10 million through matching grants of up to MYR 20,000 to the implementation of Aquaculture Development Programme, which allows micro entrepreneurs to purchase equipment to develop high-value aquaculture livestock; and
  • MYR 100 million through collaboration with State governments for the implementation of impactful and high-value farming projects, such as pineapple farming in Johor and freshwater prawns in Negeri Sembilan.
• The commodity sector: to further boost longevity of the commodity sector, the government has allocated the following funds for the following steps in 2021:
  • MYR 20 million to continue the Malaysian Sustainable Palm Oil Certification or MSPO to boost growth and enhance the competitiveness of the country’s palm oil industry. Matching grants of MYR 30 million will also be introduced to encourage the industry’s investment in mechanisation and automation;
  • MYR 16 million as an incentive to encourage latex production;
  • A revolving fund amounting to MYR 500 million will also be provided for the Forest Plantation Development Loan (PPLH) programme. The funds are dedicated for the development of forest plantations with an area of 4 hectares and above.
• The tourism industry was one of the sectors most badly affected by the Pandemic. The government has therefore allocated:
  • MYR 50 million for the maintenance and repair of tourism facilities throughout the country.
  • MYR 20 million to improve the infrastructure and intensify the promotion of Cultural Villages in Terengganu, Melaka, Sarawak and Negeri Sembilan.
  • MYR 10 million to ensure that national heritage buildings will continue to be preserved and become tourism icons.
  • MYR 35 million to the Malaysia Healthcare Travel Council. Income tax exemption will also be extended for the export of private healthcare services until year of assessment 2022.