BUILDING on the framework of the revised Budget 2023, Prime Minister Datuk Seri Anwar Ibrahim unveiled Budget 2024 today with the theme “Economic Reform: Empowering the People”.
The budget, rooted in the Madani economy vision, is positioned to reshape the economy towards enhanced economic growth, promoting investments, and strengthening the local industries to become more innovative and competitive.
The Federation of Malaysian Manufacturers (FMM) congratulates the unity government for striking a fine balance between fiscal discipline and helping the rakyat to cope with the high cost of living while strengthening the foundation for medium-term growth.
FMM recognises that Budget 2024 is drafted against a still uncertain macro backdrop as growth momentum has slowed significantly worldwide, compounded by an increasingly volatile geopolitical environment. Hence, the budget – with an operating expenditure of RM303.8 billion and development expenditure of RM90 billion – is mildly expansionary to support the official 4-5% growth target for 2024.
FMM thinks a gradual reduction of the fiscal deficit to 4.3% from 5% last year is a balanced one that would support economic growth while avoiding the consequences of drastic austerity measures.
The budget has rightly focused on more concrete fiscal reforms and represents a notable effort and a step in the right trajectory to restore public finances and strengthen our collective resilience.
While the goods and service tax is a broader, more transparent and efficient tax system tool for revenue generation, FMM opines that the timing for its reintroduction is right given the current economic difficulties. In the interim, the sales and service tax was increased from 6% to 8%.
Additionally, the government would introduce a high value tax, capital gains tax for the disposal of unlisted shares by companies and pare back generous subsidies which are expected to surpass RM81 billion this year.
Importance of manufacturing sector’s contribution to economic growth
FMM lauds the recognition of the importance that the manufacturing sector plays in the overall economic growth of the country.
The industry views positively the allocation of RM200 million in 2024 as the initial fund to drive the New Industrial Masterplan 2030 in elevating the sector as the country’s engine of new growth.
We also welcome the focus and priority given to high-growth high-value (HGHV) sectors and the incentives such as the tiered reinvestment tax incentives introduced to support the contribution of these sectors to the overall gross domestic product of the country.
The introduction of the Investment and Trade Coordination Action Committee is also a step in the right direction to further attract more HGHV related investments both foreign and domestic.
The focus on technology and innovation to drive new economic growth – supported by research, development, commercialisation and innovation (RDCI) – which will enable Malaysia to be in the Top 30 countries in the Global Innovation Index by 2026 is much welcomed.
In particular, the RM510 million allocation for R&D Funds under the Science, Technology and Innovation Ministry and the Higher Education Ministry, as well as the push for greater collaboration between public universities and industry will further drive initiatives in RDCI.
The industry notes the extension in the implementation date for the first phase of the e-invoicing by the Inland Revenue Board (IRB) to August 1, 2024. This move would certainly facilitate greater preparedness of industries in meeting this new mandatory requirement.
FMM would also like to express our gratitude to the Royal Malaysian Customs Department and the Finance Ministry for introducing tax exemption on manufacturing aids effective January 1, 2024. This significant move will undoubtedly benefit our industries by enhancing the competitiveness of our Malaysian manufactured products.
We welcome the focus on addressing the country’s food security which will further grow our food processing sector as a world-class food processing hub.
Support for transition to low carbon economy
FMM appreciates incentives and allocation towards supporting manufacturers’ transition towards sustainability and low carbon economy – including tax deductions for environmental, social and governance related expenses of up to RM50,000 per year of assessment, additional tax deduction on measurement, reporting and verification up to RM300,000 on expenses for development of carbon project, enhancement of green investment tax allowance and green income tax exemption, tax deduction for entities that sponsor tree planting or environmental and conservation projects certified by the Forest Research Institute Malaysia, and the significant increase in low carbon transition facility to RM200 billion.
These would facilitate companies along the supply chain including small and medium enterprises (SMEs) as they prepare to meet the requirements under the European Green Deal, which includes sustainable reporting, carbon border adjustment mechanism, EU Deforestation-Free Regulation, among others.
Industries are also facing challenges in deciding on their sustainable energy pathway and thus, the improvement to the Corporate Green Power Programme implementation and the solar buy-back programme would further encourage corporate participation.
Industry 4.0 & digital economy
FMM strongly supports the government’s efforts to continue emphasising on automation and digitalisation by providing RM900 million funds for SMEs under Bank Negara Malaysia to increase business productivity through automation and digitalisation.
The digital transformation of SMEs is vital in order to grow our economy as it would help SMEs boost productivity and competitiveness. The interest rate should be low enough, for example 2% or lower, to assist SMEs to ease their current cost burden in the environment of slow economic growth.
However, FMM is disappointed that our call for the establishment of the national automation fund with an initial fund of RM500 million which would subsequently be topped up with the channelling of foreign worker levy collection was not considered.
FMM would also like to suggest for the government to consider a new tax incentive for the establishment of manufacturing artificial intelligence (AI) and robotic systems at the production floor, by providing an accelerated capital allowance up to a qualifying expenditure of RM5 million for SMEs that implement manufacturing AI and robotic systems starting January 1, 2024.
FMM would also like to highlight that incentives for Industry 4.0 adoption is needed and more government resources should be allocated to promote and encourage Industry 4.0 and digitalisation in Malaysia especially for SMEs.
FMM welcomes the government’s initiative of digital connectivity and improvement of the quality of communication services, particularly in 5G development. FMM is also of the view that the government needs to review its internet connectivity strategies, for example building a next-generation and holistic telecommunication strategy roadmap to provide reliable, stable, and affordable connectivity for Malaysia.
Human capital initiatives
The industry commends the following initiatives towards the development of human capital:
i) Allocation of RM6.8 billion for technical and vocational education and training (TVET) and the RM100 million allocation for professional certification recognised by industries for TVET graduates and to incentivise industries to collaborate with public TVET institutions.
ii) New initiatives under the Malaysia Liberalisation Plan on facilitating the approval of the employment pass for investors in key sectors and the long-term social visit pass for international students who have graduated to meet the skilled talent needs of the industries.
iii) The RM70 million allocation to finance more industry-led initiatives via the Academy in Industry programme which would help address skills mismatch and talent shortages.
iv) Establishment of the Inter-Ministerial Special science, technology, engineering, and mathematics (STEM) Committee which help set the direction to address the current low enrolment in STEM courses amongst secondary school students and encourage greater creativity and innovation amongst our students and graduate towards the creation of a larger pool of skilled workers required to support the priority of HGHV sectors.
Also, the RM100 million to maintain and upgrade computer labs in schools to facilitate STEM learning and the industry involvement as instructors and in supplying equipment to increase students’ interest in STEM.
v) Continuation of the Social Security Organisation special incentive to support the employment of vulnerable groups.
vi) Extension of the tax incentive to encourage women to return to the workforce until the end of 2027.
Continued support for micro, small and medium enterprises (MSMEs) is needed
The allocation of RM44 billion of loans and financing for MSMEs is a commendable move and would help MSMEs to boost their productivity and stay competitive in the supply chain.
The up to RM5,000 digitalisation grant per company for MSMEs to upgrade sales, inventory and digital accounting system is too little as nothing much can be done in terms of digitalisation. It should be at least RM20,000 per company so that MSMEs could embark on a more significant or impactful level of digitalisation to help MSMEs to increase output and grow their business and exports.
FMM welcomes the government’s efforts in improving halal certification process from 51 to 30 days. This will definitely help spur the growth of the halal export market.
Conclusion
Overall, FMM is of the view that the Budget 2024 strategy is well-balanced, prudent and forward-thinking.
As the government repositions Malaysia in this new era of global competition, FMM fully supports the initial steps taken concerning sustainability and the green agenda as Malaysia transitions to a low-carbon economy without losing sight of food security.
The budget’s focus on digitalisation and adoption of advanced technology is critical and will enhance industry competitiveness in the medium to long term.
However, we are disappointed that Budget 2024 has not addressed the sluggish trade growth with specific assistance to support trade for industries to expand their market access. – October 13, 2023
The Federation of Malaysian Manufacturers represents over 12,200 member companies (3,800 direct and 8,400 indirect) from the manufacturing supply chain and has been the voice of the sector since 1968.