Budget 2006

Additional benefits for the civil servants and the police force, and measures to cushion the people from the oil price hike are some of the key policies announced by Prime Minister Abdullah Ahmad Badawi in a 90-minute speech in Parliament yesterday.

Deficit reduced to 3.5 percent

Government expects growth to remain strong - at 5.5% in 2006. The budget deficit, the ninth in a row, will be reduced to 3.5 percent in 2006.

The budget deficit was slashed from 5.6% of GDP in 2002 to 3.8% for 2005. The reduction of the deficit has been achieved without sacrificing economic growth. A narrower deficit may help Malaysia win a higher debt rating, reducing borrowing costs for the government and companies.

Per capita income is expected to increase to RM17,741 in 2005 compared with RM16,616 in 2004. Our purchasing power parity increased from US$9,630 to US$10,323 during the same period.

The government will spend RM136.8 billion in the 2006 Budget, an increase of 5% compared to 2005.

Four-prong strategy for 2006

The 2006 Budget strategies will focus on:

1. Implementing pro-active government measures to accelerate economic activities.
2. Providing a business-friendly environment.
3. Developing human capital.
4. Enhancing the well-being and quality of life of Malaysians.

RM1 billion for maintenance work

To supplement the allocation of RM4.3 billion provided to agencies for maintenance, the government will provide a special allocation of RM1 billion for the maintenance of public facilities for next year.

In 2005, the government has provided RM500 million, enabling nearly 9,000 maintenance works to be undertaken by class F contractors, in addition to the allocation to government agencies amounting to RM4.1 billion.

Reducing cost of doing business

There will be provisions of group relief for companies within a group, with a minimum of 70% ownership between them. The group relief allows 50% of a company's current year losses to be offset against the profits of other companies in the same group.

To attract more investments to the Eastern Corridor, including Sabah and Sarawak, the existing tax incentives for projects located in this corridor will be extended for a further five years until 2010.

To encourage mergers and acquisitions, stamp duty and real property gains tax on mergers and acquisitions of companies listed on Bursa Malaysia will be exempted for firms approved by the Securities Commission from Oct 1, 2005 to Dec 31, 2007.

To provide skilled managers and directors with integrity, especially for government-linked companies (GLCs), a Management Leadership and Directors Academy will be established as a centre of leadership excellence. The academy will produce competent directors and senior management who possess effective leadership qualities.

Focus on agriculture

The agriculture sector is allocated a sum of RM2.8 billion for development expenditure, primarily for agriculture, animal husbandry, fishery and forestry.

The Fund for Food (3F) will be further increased by RM300 million to ensure sufficient funding for the food production industry. A major portion of the fund will continue to be provided for commercialisation of food production activities, including processing, packaging and marketing.

A sum of RM160 million is allocated for the development of fishery programmes, including upgrading of extension services, research and training, fish farming, fish breeding, deep sea fishing and ornamental fish.

A new company with an initial funding of RM200 million will be established to develop forest plantations commercially. This is in line with the government's strategy to produce timber on a sustainable basis.

An additional RM400 million will be allocated to finance agricultural projects of GLCs.

A special fund, Malaysian Life Sciences Capital Fund - with a RM100 million contribution from the government - to be set up for investment in biotechnology. The fund will pool investments from various institutions, such as GLCs.

Improving the Multimedia Super Corridor

To further enhance the Multimedia Super Corridor (MSC), there will be changes to guidelines to facilitate the construction of more affordable homes and improvement of public transport.

To encourage more office space for MSC-status companies, a Industrial Building Allowance for a period of 10 years will be given to owners of new buildings occupied by MSC-status companies in Cyberjaya.

An ICT Development Institute will be established to increase the supply of knowledge workers by providing the skill sets required by the ICT industry, especially shared services and outsourcing companies.

Pioneer Status of 50% income tax exemption for five years or Investment Tax Allowance of 50% be given to qualifying companies operating outside cybercities.

RM 868 million for research and development

An allocation of RM868 million is provided under the Ministry of Science, Technology and Innovation. The R&D (research and development) Grant Scheme will focus on biotechnology, advanced manufacturing, advanced materials, ICT, nanotechnology and alternative sources of energy, including solar, to encourage innovation among local companies and developing new products.

Assistance for small and medium-size industries

The SME Bank which has been established will commence operations on Oct 3, 2005. To finance the expansion of Bank Pembangunan Malaysia Berhad's lending activities, including the SME Bank, a sum of RM9 billion will be raised from the capital market. Part of this financing will be used to increase the paid-up capital of the SME Bank to RM1 billion.

SMEs will be given stamp duty exemption of 50% on documents for loans not exceeding RM1 million.

Exim Bank will be placed under the Finance Ministry. It will be strengthened and its scope expanded to play an important role in assisting and encouraging local entrepreneurs, especially bumiputera entrepreneurs, to venture abroad. The facilities provided include trade financing, overseas projects financing and credit insurance guarantee. For this purpose, a fund totaling RM1 billion will be established.

Supporting bumiputera entrepreneurs

A bumiputera property trust foundation, Yayasan Amanah Hartanah Bumiputera, will be established with an initial capital of RM2 billion for purchasing commercial properties, especially in major towns, with the objective of increasing bumiputera commercial property ownership in strategic locations and providing greater opportunities for prime business locations for bumiputera entrepreneurs.

Further incentives for education

A total of RM5 billion is allocated for education and training under development expenditure, including RM1.3 billion for pre-school, primary and secondary schools and matriculation, RM1.4 billion for higher education, RM1.1 billion for training and RM1.2 billion for ICT, curriculum development, hostels and teachers' quarters.

Tax relief of up to RM4,000 for each child studying in local institutions of higher learning based on actual expenses will now be given automatically. This relief will also include:

-Children studying at recognised institutions of higher learning abroad.
-Disabled children studying at institutions of higher learning.Taking into account the current tax relief of RM5,000 for each disabled child, parents will be eligible for a total relief of RM9,000.

To encourage lifelong learning, the scope of courses that qualify for tax relief of RM5,000 to individual taxpayers will be broadened. Presently, tertiary level courses in technical, vocational, industrial, science and technology skills are tax exempted and this will be extended to professional qualifications and for courses in accounting and law.

The expenditure for the development and regulatory compliance for new courses by IPTS (private institutions) will be given tax deduction to be amortised over three years.

To increase the number of local scientists, the government proposes that IPTS specialising in science courses be given Investment Tax Allowance of 100% for 10 years.

Cushioning the oil hike

Without tax exemptions and subsidy, the domestic price of petrol would have been RM2.80 per litre, RM2.15 per litre for diesel and RM2.50 per kg for cooking gas. These prices are about 70% higher than current retail prices.

With the exception of Sarawak, private diesel vehicles exceeding 1,600cc will be given a road tax reduction of 40% effective Oct 6, 2005.

Assistance for the old and the needy will be increased from RM135 to RM200 per month. The assistance for orphans and poor children will be increased from RM80 to RM100 per month per child. The maximum assistance per family is increased from RM350 to RM450 per month.

Poverty eradication

An allocation of RM700 million is provided, including Housing Assistance Programme to build and repair 4,000 houses for the hardcore poor in rural areas, upgrading and renovating rural schools, especially in Sabah and Sarawak.

Full coverage of electricity and water supply for schools, with the focus on supplying electricity to 550 schools and water to 260 schools.

RM104 million to be allocated to improve the standard of living of Orang Asli .

A sum of RM2.1 billion will be allocated to provide houses for low-income families. Of this, RM1 billion is allocated to build 21,600 units of low-cost houses.

More housing for teachers and uniformed personnel, such as the armed forces, police, firemen and customs officers. A sum of RM1.1 billion is allocated for the provision of 26,000 units of quarters in 2006. In addition, the government will also implement the PDRM 3-bedroom quarters project nationwide costing RM2.5 billion on a build-lease-transfer basis. The construction work will mainly be undertaken by bumiputera small local contractors.

Equal treatment for women

To ensure equitable tax treatment, the option for Real Property Gains Tax (RPGT) exemption will be given to the owner of the residential property, irrespective whether it is the husband or the wife. Instead of only one claim for each married couple, a husband and wife can each claim one property for exemption of RPGT on a once in a life-time basis.

Enhancing culture

Tax exemptions on income derived from royalty or payment in respect of artistic works or recording discs and tapes be increased from RM6,000 annually up to RM10,000 annually.

Exemptions on import duty and sales tax be given to equipment used in the performing arts industry.

Income derived by non-resident professionals who train Malaysians in the fields of performing arts and creative crafts as well as related technical fields be exempted from withholding tax.

Tax hike in cigarettes, liquor

Tax on cigarettes and liquor to be increased by an average of 13% for cigarettes and 9% for liquor.

Rukun Tetangga to be revived

Rukun Tetangga in all residential areas will be brought back to curb crimes.

An allocation of RM101 million is provided for Rakan Muda programme and RM600 million for the National Service Training programme. A total of 95,000 youths will be trained under the National Service Training programme in 2006 compared to 65,000 in 2005.

To carry out prevention, treatment and rehabilitation programmes as well as the management of 29 rehabilitation centres, RM207 million is allocated for the National Anti-Drug Agency.

A sum of RM138 million is allocated to assist non-governmental organisations in implementing these activities, including welfare organisations for the elderly, children, disabled as well as associations for sports and youths.

Encouraging gas as fuel

To facilitate vehicle owners to use gas, the number of retail gas stations currently totalling 51 will be doubled by 2007.

Import duty and sales tax exemption to be given on chassis with engines of monogas trucks and buses as well as conversion kits.

A grant of RM50,000 per bus will also be provided for each monogas bus acquired until the end of 2008. Tax incentives will be given for the expansion of the gas reticulation network.

Companies generating energy from environmental-friendly renewable resources, such as biomass, hydropower not exceeding 10 megawatts and solar energy are eligible for tax incentives.

Bakun project to continue

Bakun hydro-electric project will proceed as planned and it will cost RM6.1 billion for the period 2006 to 2009. Sabah has been allocated RM2.3 billion in the 2006, while Sarawak has been allocated RM2 billion.

Goodies for police, civil servants

Reimbursement for the cost of tailoring of uniforms for lower ranked police personnel up to RM100 per uniform for three uniforms per year.

Increase in incentive payments for bomb disposal unit from RM50 to RM100 per operation.

Incentive for divers currently enjoyed by the Armed Forces of Malaysia, Fishery Department, and National Science Centre will also be extended to PDRM as well as Fire and Rescue Services Department personnel. The incentive will be increased from RM50 to RM100 per month for divers and from RM150 to RM250 per month for clearance divers.

Assistance for living expenses for government servants in Grades 1 to 54, except for those living in quarters or receiving regional allowance, will be as follows:

-RM150 a month for those working in Kuala Lumpur, Putrajaya, Ampang Jaya, Kajang, Klang, Selayang, Shah Alam, Subang Jaya, Petaling Jaya, Johor Bahru, Georgetown and Butterworth.
-RM100 per month for those working in 26 other towns.
-RM50 per month for those working in other areas.

Bonus for civil servants

Civil servants earning up to RM1,000 a month will be paid a bonus of one and a half months salary and those earning more than RM1,000 a month will be paid a bonus of one month salary subject to a minimum of RM1,500.

The bonus will be paid in two equal instalments in October and November 2005. In addition, the government will make a special payment of RM200 for pensioners in October 2005.