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Key takeaways of Malaysia Budget 2021

Key takeaways of Malaysia Budget 2021

On 9 November 2020, Malaysia's Budget 2021 (#Belanjawan2021) was announced in Parliament by Finance Minister Tengku Zafrul Aziz, covering three integral goals:

  • #1 Rakyat wellbeing
  • #2 Business continuity
  • #3 Economic resilience

Tengku Zafrul said the three goals are a continuity of the Prihatin, Prihatin SME Plus, PENJANA, and Kita Prihatin stimulus packages. 

He said: "Besides a more targeted approach, the Government will strike a balance between the government’s financial sustainability, reduce the urban and rural development gap, and uphold the values to shape the economy that we aspire for through this Budget 2021."

Employer- and business-related highlights of the speech are detailed below.

GOAL #1: Rakyat wellbeing

According to the Minister, the first goal, the Rakyat's wellbeing, will be "manifested holistically, anchored on the fundamental understanding of the people’s problems and worries."

In achieving this goal, the government will focus on three key strategies:

Strategy 1: COVID-19 pandemic and public health

The first strategy is to overcome the COVID-19 pandemic and protect public health. Last August, the Minister noted, members of the August House had approved two very important Acts to address the COVID-19 pandemic.

First, is the Temporary Measures to Reduce the Impact of Coronavirus 2019 (COVID-19) 2020 Act. This Act provides exemption or relief to individuals who are unable to fulfill their contractual obligations such as rent payments due to the spread of the epidemic.

A COVID-19 Mediation Centre was also established to assist the B40 and M40 groups as well as micro industries resolve disputes related to their contractual obligations.

Second, is the Temporary Measures for Government Financing (Coronavirus Disease 2019) Act, which allows the Government’s statutory debt level to be temporarily raised up to 60% of the GDP, from 55%. Under this Act, the Parliament has approved an allocation ceiling of RM45bn for the COVID-19 Fund.

Tengku Zafrul added: "Taking into account the current epidemic wave and requirements needed until 2022, the Government proposes to submit amendments to the Schedule of the Act to this esteemed House to raise the ceiling of the COVID-19 Fund, by RM20bn, to RM65bn.

"The main purpose is to fund the Kita Prihatin package, additional assistance for the people’s wellbeing, needs of our frontliners and expected procurement of vaccine. I hope the Members of this august House will collectively approve this proposal."

Apart from this, the Minister noted that in 2002, the Government had allocated RM1.8bn to the implementation of the movement control and public health service needs related to COVID-19.

Moving forward, in 2021, an additional RM1bn will be allocated to stem the third wave of COVID-19. This allocation will, among others, cover the following:

  • RM475mn for the purchase of reagent, test kits, and consumables for the
  • Ministry of Health’s (MOH) usage;
  • RM318mn to provide PPE and hand sanitisers to MOH frontliners;
  • RM150mn to the National Disaster Management Agency to coordinate efforts to fight COVID-19;
  • RM50mn for the purchase of equipment, laboratory test supplies, and medicine for university teaching hospitals; and
  • Procurement of equipment required to resume dental services, virtual clinical services, and preparation of preliminary zone facilities and thermometers at health facilities to meet the Standard Operating Procedures.

Further, in appreciation of the hardwork of the frontliners, the Government will be providing a one-off payment of RM500, which is expected to benefit 100,000 medical staff.

Other measures announced under this strategy include:

  • The acquiring of COVID-19 vaccine supplies, including through participation in the COVID-19 Vaccine Global Access (COVAX) programme. These COVID-19 vaccine supplies are expected to cost more than RM3bn to meet the needs of Malaysians.
  • To encourage the Rakyat to seek vaccination as a preventive measure against diseases, the Government will expand the scope of the tax relief for medical treatment expenses covering vaccination expenses such as pneumococcal, influenza and COVID-19. This tax relief, given on vaccination expenses for the taxpayer, spouse and child will be capped at RM1,000.
  • The Government will also increase the tax relief limit on medical expenses for self, spouse and child for serious diseases from RM6,000 to RM8,000 and tax relief limit for expenses on full medical check-up from RM500 to RM1,000.
  • In addition, the limit of tax relief on expenses for medical treatment, special needs and parental care is also increased from RM5,000 to RM8,000.
  • The Government will be allocating RM24mn to address mental health issues, which have been a serious occurrence through the pandemic, including the strengthening of the Mental Health, Violence and Injury Prevention, and Substance Abuse Programmes.
  • Up till 31 October 2020, the mySalam programme has paid hospitalisation and critical illness-related claims worth RM64mn to 56,000 patients. Moving forward, the Government will enhance the programme by broadening the programme's coverage to medical devices such as heart stents or prosthesis
  • The Government also plans to expand social protection for the B40 group through the Perlindungan Tenang Voucher Programme. Under this programme, all B40 aid recipients will be given a 50 ringgit voucher as financial aid to purchase Perlindungan Tenang products such as life takaful and personal accident.

Strategy 2: Safeguarding the welfare of vulnerable groups 

The second strategy focuses on safeguarding the welfare of vulnerable groups, through three measures:

Measure #1: Improving financial assistance

Tto enhance the welfare of vulnerable groups, the Government will increase the monthly rate of financial assistance as follows:

  • The rate for financial assistance for persons with disabilities who are incapable of work is increased from RM250 to RM300;
  • The rate for financial assistance for older persons, carers of bed-ridden disabled persons and chronically Ill patients is increased from RM350 to RM500;
  • The rate for incentive allowance for disabled workers is increased from RM400 to RM450; and
  • The rate for financial assistance for children is increased from RM100 per child with a maximum of RM450 per family, RM150 per child aged seven years to 18 years, or RM200 per child aged six years and below with a maximum of RM1,000 per family. It is hoped this increase will help with childcare and nutritious food.

These increases involve an allocation of RM2.2 billion, i.e. an additional RM700mn, and will benefit more than 400,000 beneficiaries.

In addition to the above, the Government will be replacing the Bantuan Sara Hidup with the Bantuan Prihatin Rakyat, with higher rates of cash assistance provided by income categories. More details can be found on page 19 of the speech here.  

Measure #2: Alleviating the rakyat's cost of living

Under this measure, Tengku Zafrul announced a series of key initiatives to aid the people during the crisis. 

First, the income tax for residents will be reduced by one percentage point (1pp) for the chargeable income band of RM50,001 to RM70,000. This is estimated to benefit 1.4mn taxpayers.

Second, banks will be enhancing the Targeted Loan Repayment Assistance for B40 borrowers who are BSH recipients, and to micro enterprises with loans of up to RM150,000

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.

For the M40 borrowers, the application process for the repayment assistance will be simplified. Borrowers would only need to make a self-declaration of the reduction in income in order to secure the repayment assistance. The facility for the B40 and M40 will commence in December 2020.

Third, the minimum employee EPF contribution rate will be reduced from 11% to 9% beginning January 2021 for a period of 12 months, to increase take-home pay. This will benefit EPF contributors with a potential cash flow of up to RM9.3bn.

In April this year, the EPF had introduced the i-Lestari withdrawal facility which allowed members to withdraw RM500 a month for 12 months with a total of up to RM6,000. This facility has benefitted 4.7mn members with a total value of RM11.6bN.

In line with that, Tengku Zafrul noted the "much-awaited" fourth initiative, the facility to withdraw EPF savings from Account 1 on a targeted basis. The amount allowed will be RM500 a month with a total of up to RM6,000 over 12 months.

This withdrawal will assist members who have lost their jobs and is expected to lighten the financial burden of approximately 600,000 affected contributors.

Taking into account both i-Lestari and this Account 1 withdrawal facility, the total allowed withdrawal will be up to RM12,000. It is projected that total withdrawals from Account 1 will involve RM4bn. Eligible contributors can apply beginning January 2021.

Fifth, the Government will enhance the Employment Insurance Scheme. Tengku Zafrul explained: "The Job Search Allowance for those covered under SOCSO’s Employment Insurance System is currently for six months starting at a rate of 80% of the employee's monthly salary and gradually decreases to the rate of 30% of the employee's monthly salary.

"For the year 2021, the Job Search Allowance will be extended by three months and the rate will be 80% in the first month, 50% for the second till the sixth month and subsequently 30% for the last three months. For this purpose, an allocation of RM150mn will be provided and is expected to benefit up to 130,000 job seekers.

Sixth, to assist taxpayers who have lost their jobs due to the current economic condition arising from the COVID-19 pandemic, it is proposed that for years of assessment 2020 and 2021, the income tax exemption limit for compensation for loss of employment be increased from RM10,000 to RM20,000 for each full year of service.

Measure #3: Assistance to farmers and fishermen

Apart, the Government will also be implementing a series of initiatives to aid farmers and fishermen, such as the doubling of the Rubber Production Incentive, RM1.7bn worth of subsidies and incentives, and an increased allowance. More details on page 27 of the speech.

Strategy 3: Generating and retaining jobs

The third strategy of #Belanjawan2021 is to generate and retain jobs. According to Tengku Zafrul, the average unemployment rate over the last ten years was 3.2% or around 500,000 unemployed. As a result of COVID-19, this has increased to 5.3% or 820,000 unemployed in the month of May 2020, which is the highest since 1989. As a result of the implementation of the Prihatin and PENJANA initiatives, the unemployment rate reduced to 4.7% in August 2020.

Next year, the Government will implement the Skim Jaminan Penjanaan Pekerjaan (JanaKerja) which will provide 500,000 new job opportunities including skills development and retraining programmes worth RM3.7bn.

These will be done as part of the following measures:

Measure #1: PenjanaKerjaya Incentive (Hiring Incentive)

The Government will continue the hiring incentive programme under PERKESO, which is now known as PenjanaKerjaya with several enhancements as below.

First, the incentive for employees earning RM1,500 and above will be enhanced from a flat rate of RM800 per month to 40% of their monthly income, subject to a maximum incentive of RM4,000.

Second, 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%.

Third, 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 for the local worker replacing the foreign worker.

The above three incentives will be given for a period of six months.

Fourth, for those employed under the PenjanaKerjaya, the maximum training rate which can be claimed by employers will be increased from RM4,000 to RM7,000 to enable workers to take up high skilled training and professional certifications.

A total of RM2bn will be allocated to ensure the success of these initiatives, which are expected to increase the employment opportunities for 200,000 jobseekers.

Tengku Zafrul further added: "I would like to take this opportunity to announce the formation of a National Employment Council which will be chaired by YAB Prime Minister. This council will coordinate various initiatives cutting across ministries and agencies which create job opportunities, skills enhancement and training for employees. The LAKSANA unit will be responsible to monitor the effectiveness of all these initiatives to ensure the Rakyat continues to receive employment opportunities."

Measure #2: Reskilling and upskilling

Reskilling and upskilling programmes will continue to be implemented. In 2021, a total of RM1bn will be allocated, benefitting 200,000 trainees as follows:

First, RM150mn will be allocated for the Ministry of Higher Education professional certification (KPT-PACE) whereby fresh graduates will each be eligible for a voucher worth RM3,000 to pursue a professional certification course at public or private universities. It is expected that 50,000 graduates will benefit from this programme;

Second, RM10mn will be allocated to the Human Resources Development Fund to implement trainings in collaboration with private-sector employers.

Third, RM100mn will be allocated to MDEC to transition the existing workforce to fill the growing needs in the ICT industry.

Fourth, involves the allocation of RM100mn to regional corridor authorities, mainly IRDA and SEDIA, to provide new skills training to workers badly affected by the closure of borders to foreign tourists, in order to assist them in securing new employment or source of income.

Fifth, involves RM30mn to PERHEBAT for entrepreneurship training programmes that will benefit 12,000 veterans of the Malaysian Armed Forces.

To encourage Malaysians to upskill and venture into a new area of employment, the scope of relief for tuition fees will be expanded to cover expenditures incurred for attending up-skilling courses provided by certified bodies, limited to RM1,000 for each year of assessment.

Measure #3: MySTEP

The Government will introduce MySTEP, or the Short-term Employment Programme, with an allocation of more than RM700mn. This initiative will offer 50,000 job opportunities on a contract basis in the public sector and Government Linked Companies (GLC) starting January 2021.

Under this initiative, 35,000 job opportunities will be offered in the public sector, with priority to fill up positions such as nurses, medical attendants, social welfare officers and temporary teachers. Meanwhile, GLCs will offer 15,000 job opportunities that prioritise technical and financial fields as well extending this opportunities for new graduates to participate in apprenticeship programmes.

Measure #4: Targeted wage subsidy

Through the stimulus packages, the wage subsidy was provided for up to nine months with an allocation of more than RM15bn. As at 31 October 2020, the Government has channelled RM12.5bn to fund the SOCSO Wage Subsidy Programme which has helped 2.7mn million workers and more than 330,000 employers.

However, Tengku Zafrul highlighted that many employees are still affected especially in the tourism sector. Therefore, the Government will extend the implementation of the Wage Subsidy Programme for another three months with a more targeted approach, specifically for the tourism sector, which includes the retail sector at a rate of RM600 per month for workers earning RM4,000 and below. In addition, the limit of 200 employees per application will be increased to 500 employees. A total of RM1.5bn is allocated for this purpose and is expected to help about 70,000 employers and 900,000 employees.

Measure #5: Social protection

Tengku Zafrul noted that insurance has a low penetration rate in Malaysia and is among factors that undermine financial security for individuals and families. Hence, the EPF will allow members to withdraw from EPF Account 2 to purchase insurance and takaful products which are approved by EPF, relating to life and critical illnesses coverage for themselves and their family.

To further encourage old-age savings through the Private Retirement Scheme (PRS), the individual income tax relief of up to RM3,000 on the PRS contributions will be extended until the year of assessment 2025.

The Government has also provided RM24mn for full contributions under the SOCSO Employment Injury Scheme benefitting, 100,000 employees from the following groups:

  • Malaysian Armed Forces volunteers, Police reserve volunteers, Malaysian Civil Defense volunteers, and Malaysian Maritime volunteers;
  • Guru Takmir, Imam, Bilal, Tok Siak, Noja, and Merbot;
  • Contract for Service Public sector workers; and
  • To appreciate the contribution of delivery riders who were in the frontline during the movement control period, this initiative is also extended to 40,000 delivery riders.

Apart from the above initiatives under Goal #1, Budget 2021 also includes further measures targetted at businesses, employers and employees under the remaining two goals (Business continuity and Economic resilience), with excerpts pulled out below:

A National Development Scheme valued at RM1.4bn by Bank Pembangunan Malaysia will be introduced to support the implementation and development of domestic supply chain and increase the production of local products such as medical devices.

In addition, the Maritime Development and Logistics Scheme, Sustainable Development Financing Scheme, Tourism Infrastructure Scheme, and Public Transport Fund will be extended until 31 December 2023 with a fund size of RM3.7bn.

A total of RM500mn from these schemes will be designated for Bumiputera entrepreneurs to increase their involvement in the key sectors.

To further assist affected SMEs, the Targeted Assistance and Rehabilitation facility worth RM2bn under BNM will be introduced through loans from banking institutions.

Separately, in aiding the tourism industry which has been badly affected by the pandemic, the Government will provide training and placements for 8,000 employees of airline companies in Malaysia with an allocation of RM50mn.

The Government will also provide employment opportunities for 500 people in the local and Orang Asli communities as tour guides at all national parks to boost the ecotourism segment.

Next, the Government will be focusing on long-term productivity through the use of new technology to accelerate the transformation towards a high-income economy.

In particular, the Government, through BPMB, has provided the Industrial Digitalisation Transformation Scheme valued at RM1bn, which aims to boost digitalisation activities. To that end, the availability of these funds will be extended until 31 December 2023.

In addition, in support of automation and modernisation, additional funds amounting to RM150mn will be provided under the SME Digitalisation Grant Scheme and the Automation Grant. The eligibility condition for these Grants have also been relaxed for micro SMEs and start-ups that have been operating for at least six months.

Further, to assist the financial position of SMEs that supply for the Government or GLCs, the Government will introduce the National Supply Chain Finance Platform. Known as Jana Niaga, the platform will benefit SMEs with cash flow problems due to the long invoice payment period as well as help them to secure loans from financial institutions.

The Jana Niaga platform will be led by EXIM Bank with the involvement of several financial institutions. A total of RM300mn will be provided by EXIM Bank to drive the initiative. For now, Jana Niaga will be implemented together with Petronas and Telekom Malaysia. It will be extended to other GLCs, Ministries and Government agencies in the future.

Full speech can be found here and here

Photo / Infographic on Tengku Zafrul's Facebook page 

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