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Saturday, 8 September 2007

Highlights of Malaysian Budget 2008 - several incentives for Islamic finance industry

Note: Items 11, 12, 13 & 14 below are incentives given to Islamic finance industry - Editor

KUALA LUMPUR: Prime Minister Datuk Seri Abdullah Ahmad Badawi tabled the Budget 2008, themed "Together Building The Nation and Sharing Prosperity", in Parliament on Friday, 7 September 2007. Prime Minister Datuk Seri Abdullah Ahmad Badawi addressing the Parliament on Budget 2008.Abdullah, who is also Finance Minister, said the budget is focussed on three main strategies: Enhancing the nation's competitiveness, strengthening human capital and ensuring the well-being of all Malaysians. Following are highlights in Budget 2008 tabled:

1) Single-tier tax system, effective from the year of assessment 2008. Under a single-tier tax system, profits are only taxed at the company’s level and dividends received are exempted from tax.
2) Further reduction of the corporate tax to 25% in 2009.
3) Effective 1 January 2008, private valuation of property will be allowed for purposes of assessment in stamp duty payment. This will enable the transfer of property to be executed pending the final valuation from the Valuation and Property Services Department.
4) All professionals and consultants to be subject to service tax.
5) Immigration Department will shorten the processing period for the issuance of work permit to 7 days for skilled workers, compared with 14 days previously. Also, a new category of visa for business travellers will be introduced, which will provide for a longer validity period.
6) The Government will establish a Public Companies Accounting Oversight Board under the auspices of the SC. This Board will be responsible to monitor auditors of public companies to ensure that the quality and reliability of audited financial statements is enhanced.
7) Companies and intermediaries that demonstrate high standards of corporate governance and market conduct will be accorded the ‘green lane’ status. These include shorter timeframe for the processing of their corporate proposals, as well as a longer period of licensing. For intermediaries, the period of licensing will be increased from one year to three years and for individuals, two years.
8) To encourage more public listed companies to undertake M&A;, stamp duty exemption will be extended to 31 December 2010.
9) To encourage the development of the fund management industry, foreign ownership on fund management companies and REITs management companies will be allowed up to 70%. The minimum Bumiputera ownership requirement will remain at 30%. The SC will facilitate the licensing process as well as all dealings with other Government agencies to expedite the approval process for the establishment of fund management businesses in Malaysia.
10) Commission rates for internet trading and cash upfront transactions will be fully negotiable. This measure will further reduce the cost of transactions. In addition, clearing fees will be reduced from 0.04% to 0.03%, with a maximum fee of RM1,000. The minimum broking charges per transaction is fixed at RM40.

11) In line with the objective of Malaysia International Islamic Financial Centre (MIFC), Islamic fund management companies will be allowed to be wholly owned by foreigners. A sum of RM7 billion fund will be channelled by EPF to be managed by Islamic fund management companies. Islamic fund management companies will be allowed to invest all their assets abroad, and fund management companies will be given income tax exemption on all fees received in respect of Islamic fund management activities, until year of assessment 2016.

12) Income tax exemption will be given to non-resident consultants with the required expertise in Islamic finance.

13) To further encourage greater flows of funds from the Middle East to Malaysia, three new stockbroking licenses will be issued to leading stockbroking companies that are able to source and intermediate business and order flows from the Middle East.To further stimulate the property sector in particular housing, the Government proposes that a 50% stamp duty exemption on documents of transfer be given for the purchase of one house of not more than RM250,000 per unit.

14) To further promote the takaful industry, the Government proposes several enhancements in the tax treatment, including tax deduction on the share of distributed profits.

15) The main thrust of agriculture sector development is to enable this sector to become one of the major sources of economic growth. For this purpose, a sum of RM6.5 billion is allocated for the agriculture sector. For the fishery sub-sector, allocations will be provided to increase revenue of fish landing and output of the fishery industry as well as to develop the aquaculture industry under 39 high-impact projects.
16) Several new sources of growth in the agriculture sector have been identified, such as the pioneer project of virgin coconut oil processing, commercialising nira nipah products and breeding of Boer goats. Allocations will also be provided to pioneer organic fertilizer production, utilisation of fertigation technique in planting and mechanisation and automation for farmers.
17) In the context of supporting private sector initiatives in the biotechnology industry, the Government will continue to provide infrastructure and technological facilities. For this purpose, a sum of RM236 million is provided in the 2008 Budget.
18) To encourage cooperation between biotechnology companies and local universities, Bionexus status companies will be allowed to use the laboratories and research facilities at local universities, thereby optimising the capacity of research laboratories and facilities at local universities.
19) To further increase the country’s attraction as a major tourist destination, RM858 million is allocated for the implementation of various programmes, including the provision and upgrading of tourism facilities as well as diversification of tourism products. An allocation of RM22 million is provided to increase homestay activities in 47 selected villages. In addition, the development of ecotourism projects will be undertaken to generate income for the rural community, including Orang Asli.
20) The examination fee for Sijil Tinggi Agama Malaysia and the annual fee for primary and secondary schools will be abolished.
21) Beginning the 2008 school session, the Text Book Loan Scheme will be provided to all students, irrespective of their families’ income and with no restrictions on the number of eligible children. With this, 5.7 million students will benefit from this Scheme compared with 4.5 million students currently. With these measures, schooling in Malaysia is now completely free.
22) The active participation of students in co-curriculum activities, such as uniformed bodies, associations and clubs as well as sports, is important for character building and developing leadership qualities among students. To ensure every student has the opportunity to participate in uniformed activities, the Government will provide a free uniform for one activity for school students from families with a monthly income of RM1,000 and below.
23) In recognising the important role of teachers, the Government will increase the allowance for special education teachers, from RM100 to RM250 per month; raise the allowance for graduate substitute teachers from RM85 to RM150 per day; and provide an allowance of RM60 per hour for degree holders and RM50 per hour for diploma holders teaching Chinese and Tamil languages in national schools.
24) The Government recognises that a number of primary and secondary schools have been funded and well managed by trust and charitable bodies. To support their efforts, the Government proposes that these schools be given income tax exemption. This exemption will benefit particularly Chinese and Tamil schools, as well as religious schools.
25) A sum of RM12 billion is provided for the implementation of various higher education projects and programmes, including enhancing research, development and commercialisation activities (R&D;&C) in four Research Universities;
26) Increasing the allocation to Universiti Teknologi MARA to achieve the target of 200,000 students by year 2010; upgrading and expanding Universiti Malaysia Kelantan, Universiti Darul Iman and Universiti Pertahanan; and re-branding of community colleges through preparatory courses at diploma level, establishing new community colleges and intensifying collaboration with private companies.
27) The Government will increase the number of undergraduate students sponsored by PSD in local universities from 5,000 students to 10,000 annually, beginning 2008.
28) Taking cognisance of the rising cost of living for students, the Government will increase the cost of living allowance (COLA) between 23% to 84% for students in local higher learning institutions, including those attending preparatory and language courses. These new rates will be effective beginning the first semester 2007 session and will benefit more than 90,000 students.
29) Effective September 2007, the Government will increase the COLA for students in the United States, United Kingdom and Canada by up to 97%, almost double the current rate.
30) A sum of RM2 billion is allocated to various government training agencies to increase the number and quality of trained workers, in line with the needs of the labour market. Of this, RM480 million is allocated for GiatMARA and Industrial Training Institute (ILP) training programmes, as well as skills training in the National Youth Training Institute.
31) To enhance the capacity of training institution, RM550 million is allocated to upgrade polytechnic and community colleges. A sum of RM750 million is allocated for the construction of Advanced Technology Training Centre (ADTEC) in Taiping and an ILP in Marang. This allocation is also utilised for the upgrading of ILPs and ADTECs throughout the country and for the construction of 8 MRSMs, 4 MARA Skills Training Institutes (IKMs) and 28 GiatMARA centres. For this purpose, the Human Resource Development Berhad Act, 2001 (Act 612) will be amended to allow employers to provide financial assistance to enable their employees to pursue Masters or Doctoral degrees, especially in new and high technology areas; train employees despite the employer having outstanding unpaid levies or outstanding interest on levies; and provide practical training at their premises to students of universities or training institutions.
32) Construction Industrial Development Board (CIDB) will implement the Masterskills Training Programme, encompassing management skills and physical construction. In 2008, CIDB will allocate RM100 million to train 50,000 workers under this programme.To promote a culture of life-long learning among Malaysians, the Government proposes tax relief of up to RM5,000 on education fees be extended to all post graduate studies.In 2008, a sum of RM230 million is allocated for the Science Fund, RM300 million for Techno Fund and RM546 million for research institutions. To simplify and expedite the disbursement for agriculture R&D;, a sum of RM300 million will be transferred from the balance of the 9MP ceiling of the Science Fund and Techno Fund to the Ministry of Agriculture.
33) To promote commercialisation, as well as provide further incentives to researchers, the rate for royalty payment to researchers will be increased to 80% and the balance for research institutions.
34) To ensure an adequate supply of high-skilled workers to meet the demand of the ICT industry, a Knowledge Workers Development Institute will be established in Cyberjaya. The MSC Malaysia Digital Animation Centre will be set up in Cyberjaya, to support the development of the digital animation industry as well as increase local expertise in the area.
35) In line with efforts to establish a knowledge-based economy and narrow the digital divide, the Government has targeted to increase the broadband penetration rate to 50% of households by 2010, from 12% currently. For this, an effective public-private partnership will be required to accelerate the rollout of broadband. As part of this effort, developers will be encouraged to provide telecommunication infrastructure in new housing areas.
36) The Government also proposes that last mile network facilities providers be given Investment Allowance of 100% on capital expenditure incurred for broadband up to 31 December 2010; import duty and sales tax exemptions be given on broadband equipment and consumer access devices; and tax deduction be given to employers on benefits in kind in the form of new computers and payment of broadband subscription fees for employees. Such benefits in kind received by the employees will also be tax exempt.
37) A sum of RM381 million is allocated for the implementation of low-cost housing programmes. From this, RM191 million is allocated for the Program Perumahan Rakyat (PPR) Disewa while RM190 million is allocated for PPR Bersepadu.
38) Syarikat Perumahan Negara Berhad (SPNB) will also expedite the construction of housing for the low income group, as follows rehabilitation of 6,000 units in abandoned housing projects; construction of 36,000 units of affordable homes; and construction of 4,000 units of Rumah Mesra Rakyat.
39) The Government will establish a fund to provide guarantees to banks, which provide loans to those without fixed income. For a start, RM50 million is allocated to provide such guarantees to Bank Simpanan Nasional and Bank Islam Berhad, effective 1 January 2008.
40) To ease the burden of home loan repayment, the Government will allow EPF contributors to make monthly withdrawals from the balance in Account 2. The scheme will be effective 1 January 2008 and is for the financing of one house. This is a major move, which will benefit 5 million active EPF contributors. This scheme will enable contributors to own better houses than they could otherwise afford as well as lessen their monthly financial obligations. This scheme will make available up to RM9.6 billion annually for the purchase of houses.
41) The Government has allocated a sum of RM887 million in 2008 to build more quarters for civil servants nationwide.
42) A sum of RM4 billion is allocated to implement several projects to improve the quality of life in Sabah. Among the major projects are the construction of Jalan Kota Marudu-Ranau, Sandakan Northern Ring Road, upgrading of Jalan Kota Belud-Langkon, provision of rural health services, hospital facilities, low-cost housing, electricity and water supply, as well as upgrading of roads and railway.
43) A sum of RM4 billion is provided for the implementation of development projects in Sarawak. Among the major projects are construction of Jalan Kota Samarahan-Gumpeh, upgrading of Jalan Kuching-Sibu, provision of rural health services, Universiti Putra Malaysia, IKM in Bintulu, electricity and water supply projects, sewerage as well as replacement of Batang Lupar Bridge in Samarahan.
44) To further promote tourism activities in Sabah and Sarawak, RM200 million is provided under the Tourism Infrastructure Fund, managed by Bank Pembangunan Malaysia Berhad. Priority will be given to tourism projects which leverage on the rich natural endowments of Sabah and Sarawak.
Efforts will continue to be taken to improve the income and standard of living of Bumiputeras in Sarawak, including Iban, Bidayuh, Melanau and Melayu, as well as Kadazan-Dusun, Melayu, Bajau and Murut in Sabah. For this purpose, a sum of RM800 million is provided for Sarawak and Sabah. Among the programmes to be implemented, particularly for the low income group, include housing, skills and entrepreneurship training, water and electricity supply, roads, as well as pre-school education.
45) A sum of RM214 million is allocated for Skim Pembangunan Kesejahteraan Rakyat. The Government will focus, among others, on measures to increase household income, strengthen human capital development, as well as provide housing assistance to the hardcore poor. In addition, a sum of RM117 million is allocated for Program Pengurangan Kemiskinan and Program Lonjakan Mega. These are integrated development programmes to generate income for the population in less developed and remote areas.
46) Existing facilities in urban areas will be improved to provide training for school dropouts to acquire skills to enable them to be gainfully employed, particularly those who did not complete PMR and SPM. In this respect, the Government will provide RM30 million for NGOs to undertake special training programmes, as well as extending the Community College and the GiatMARA programmes to urban areas.
47) A sum of RM680 million is provided for the construction of rural and village roads, RM462 million for rural water and electricity supply projects as well as RM70 million for social amenities and RM15 million for ICT education in rural areas. In addition, the Malaysian Communications and Multimedia Commission has allocated RM45 million for the implementation of SchoolNet project to provide internet services to schools.
48) The Government is committed to improving the quality of life of Orang Asli. Towards this end, RM170 million is provided to the Department of Orang Asli Affairs to carry out numerous programmes and projects. A sum of RM50 million is provided for Housing Assistance Programme and social amenities in Orang Asli settlements.
49) A sum of RM984 million is allocated to implement various youth and sports development programmes, including Program Rakan Muda. In addition, a sum of RM677 million is provided for training 110,000 youths under the National Service Training Programme.To encourage sports among Malaysians, a sum of RM217 million is provided to finance sports-related projects, including maintenance and upgrading of state and community sports complexes and facilities.
50) In addition, to promote healthy lifestyle among Malaysians, the Government proposes that individual tax relief of up to RM300 a year be given on the purchases of sports and exercise equipment.
51) In 2008, an allocation of RM782 million is provided to the Ministry of Women, Family and Community Development. Among the programmes and projects to be implemented are skills training and capacity building, particularly single mothers.
52) The Government will encourage more mothers to provide childcare services at home. These home-based services will provide job opportunities for housewives to operate these centres and, at the same time, enable more women to join the workforce. For this purpose, the Government will provide an initial allocation of RM10 million to NGOs to provide training to housewives in baby and childcare.
53) Pre-school education programmes will be expanded with the construction of 280 new TABIKA throughout the country, with an allocation of RM105 million. With this, the number of TABIKA will increase to more than 7,600 to accommodate 300,000 children between 4 to 6 years.
54) A sum of RM270 million is provided as allowances for KEMAS contract staff and RM134 million is for additional food, per capita grants, as well as programmes to increase academic qualification for TASKA and TABIKA teachers.
55) To promote family values and financial security, the Government proposes full stamp duty exemption be given on the transfer of property from husband to wife. In cases where the wife wishes to transfer property to the husband, the same exemption applies.
56) A RM2 billion bond will be issued by Bank Negara Malaysia to be subscribed by senior citizens aged 55 years and above, who do not have permanent jobs. The maximum limit per person is RM50,000, with a maturity period of three years and a rate of return of 5% per year.
57) To reduce the financial burden of the poor and needy senior citizens, the Government will increase their allowance from RM200 to RM300 per month, effective from 1 January 2008.
58) The Government will continue to assist the disabled. In this regard, the Government will increase the disabled workers monthly allowance from RM200 to RM300; and provide special assistance of RM300 per month for eligible persons taking care of the disabled, who are bed-ridden and patients suffering from chronic illness. It will also allow tax deduction on renovation costs in the work place incurred by employers for the disabled to encourage the private sector to hire more disabled workers.
59) A sum of RM13 billion is allocated for improving the quality of hospital services, purchasing medical supply and health equipment. Among the major projects to be implemented in 2008 are the construction of Ulu Kinta Allied Health Science College, Kuala Pilah Nursing College, Kluang Hospital, Tampin Hospital, Cheras Rehabilitation Hospital, as well as Kuala Lumpur Women and Children Hospital.
60) An allocation of RM76 million is provided for effective containment of contagious diseases, intensive care unit services and dialysis in government hospitals. The Government will also train additional nurses in private training centres to meet the shortage of nurses.To retain medical specialists in government hospitals or clinics, the Full Paying Patient (FPP) scheme will be implemented in hospitals. The medical specialists will receive a portion of the payment, effective 1 January 2008.
61) To encourage private sector to invest in laboratories of international standards for testing of medical devices, the Government proposes Pioneer Status of 100% or Investment Tax Allowance of 60% for 5 years be given to companies undertaking such investments.Beginning financial year 2008, public listed companies will be required to disclose their employment composition by race and gender, as well as programmes undertaken to develop domestic and Bumiputera vendors.
62) The Government appreciates private sector initiatives in providing public facilities, which provide significant benefits to the local community, such as the construction of overhead bridges and playgrounds. Therefore, it is proposed that tax deduction be given on such investments.
63) A sum of RM6 billion is allocated to the Royal Malaysian Police (PDRM) in 2008.In line with this, the capacity and efficiency of PDRM will be enhanced with the recruitment of 60,000 new personnel over the next five years. Investigating officers and assistant investigating officers will be supplied with an additional 2,000 national cars and 1,600 laptops. In addition, 1,900 motorcycles will be provided to increase police presence. PDRM will also set up a Mobile Forensic Unit in each police contingent.
64) The Government will install a larger number of closed circuit televisions linked to police control centres. To assist the private sector to enhance security at their sites, in particular at factory premises, Accelerated Capital Allowance over a year will be given for the purchase of security and surveillance equipment.
In 2008, a sum of RM9.7 billion is allocated for various types of maintenance work. To ensure that the allocation is fully utilised, ministries and agencies will not be allowed to vire funds to other activities.
65) A sum of RM1.1 billion has been allocated for flood mitigation programmes in Sungai Muda, Sungai Kelantan, Sungai Damansara, Sungai Prai and Kuala Lumpur Flood Mitigation Project to reduce the occurrence of floods throughout the country. Meanwhile, an allocation of RM120 million is provided for preservation and cleaning as well as beautification programmes of rivers throughout the country.
66) To further promote energy efficiency and the use of renewable energy, the Government proposes several significant improvements in terms of tax incentives, including increasing the Investment Tax Allowance on expenditures for energy conservation and energy saving initiatives for company use.
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