Digital Law Firm Presents: A Digital-Focused Budget 2020

Digital Law Firm Presents: On Funding, Entrepreneurship and Tax
October 12, 2019

A Digital-Focused Budget 2020

The word “Digital” appears 41 times throughout the entire Budget 2020’s speech, delivered by our Finance Minister, YB Lim Guan Eng on 12 October 2019 in the Parliament of Malaysia.

The Finance Minister started his speech by setting out the four thrusts anchoring the 2020 Budget, and the first thrust (which we hope being placed in the first means the Government is placing first priority on it) is on “Driving Economic Growth in the New Economy and Digital Era”.

Here’s a summary of the salient points on going digital and accelerating the digital economy, extracted from the full text of Budget 2020  (Click here for the full text) :

Tax incentive for E&E industry

  • The Government will provide tax incentives to further promote high-value added activities in the Electrical and Electronics (E&E) industry to transition into 5G digital economy and Industry. These incentives include:
  • income tax exemption up to 10 years to E&E companies investing in selected knowledge-based services; and
  • special Investment Tax Allowance to encourage companies in E&E sector that have exhausted the Reinvestment Allowance to further reinvest in Malaysia.


Accelerating the Digital Economy

  • The Government is committed towards digital transformation. For the past year, the regulatory reforms implemented by the Malaysian Communications and Multimedia Commission (MCMC) on the Mandatory Standard on Access Pricing (MSAP) has successfully lowered broadband prices by 49% and triggered a shift in consumer demand for faster internet connections. The World Bank has praised the Government for accelerating average broadband speed by 3 times in just one year.
  • The Government will create the necessary infrastructure to construct a Digital Malaysia by implementing the National Fiberisation & Connectivity Plan (NFCP) over the next 5 years which will provide comprehensive coverage of high speed and quality digital connectivity nationwide including rural areas. The NFCP will adopt a public private partnership approach involving a total investment of RM21.6 billion. The Government, through MCMC, will finance at least half of the required investment with corresponding investments by the private sector telecommunications players via a matching grant mechanism.
  • As part of NFCP, the Government will improve connectivity in remote areas of Malaysia, especially in Sabah and Sarawak, to ensure that no one is left behind in our digital drive. MCMC will allocate RM250 million to leverage on various technologies, including via satellite broadband connectivity.
  • In addition, the Government will allocate RM210 million to accelerate the deployment of new digital infrastructure for public buildings particularly schools and also high impact areas such as industrial parks. Priority will be given to locations within states that are able to facilitate and expedite the implementation of the NFCP.


Building Digital Applications

  • The vigorous rollout of the NFCP will be key to bringing 5G technology and services to the Malaysian public. To seed technological developments by Malaysian companies to ride the global 5G wave, which is 100 times faster than 4G, the Government will introduce a 5G Ecosystem Development Grant worth RM50 million.
  • In addition, an allocation of RM25 million will be given to set up a contestable matching grant fund to spur more pilot projects on digital applications such as drone delivery, autonomous vehicle, blockchain technology, and other products and services that leverage on our investments in fibre optics and 5G infrastructure.
  • Digital content creates economic value. For instance, the global video gaming industry today has revenue upward of USD150 billion, higher than both the music and movie industries combined. Therefore, the Government will allocate RM20 million to Malaysian Digital Economy Corporation (MDEC) to grow local champions in creating digital content, especially in e-Games, animation and digital arts.


Building Digital Companies

  • To build a Digital Malaysia, the private sector must come onboard. More Malaysian Small Medium Enterprise (SMEs) need to adopt digitalisation measures for their business operations, including electronic Point of Sale systems (e-POS), Enterprise Resource Planning (ERP) and electronic payroll system. The Government will provide a 50% matching grant of up to RM5,000 per company for the subscription of the above services. This matching grant will be worth RM500 million over 5 years, limited to the first 100,000 SMEs applying to upgrade their systems.
  • The Government will also allocate RM550 million to provide Smart Automation matching grants to 1,000 manufacturing and 1,000 services companies to automate their business processes. This grant will be given on a matching basis up to RM2 million per company.
  • The Government plans to build up to 14 one-stop Digital Enhancement Centres in all states to facilitate access to financing and capacity building of our businesses, especially SMEs in line with the Fourth Industrial Revolution (IR4.0). A budget of RM70 million will be allocated to MDEC to set up these centres as an extension of the ‘100 Go Digital’ programme. To also promote knowledge sharing and education through digital enabled content, the Government proposes to establish 3 new digital libraries in Kedah, Perak and Johor.
  • Programmes such as the Coach and Grow Programme (CGP) by Cradle Fund for high impact technology entrepreneurs involving 469 companies to date have generated RM2.3 billion in revenues, including RM300 million in exports. As part of the Government’s continued commitment to promote early stage innovations, the Government will provide RM20 million to Cradle Fund for the provision of training and grants to seed companies.


Building Digital Malaysians

  • To ensure gains arising from successful Digital Companies are shared with the Rakyat, the Government will introduce the concept of Digital Social Responsibility (DSR). DSR is the commitment by businesses, to contribute to digital economic development while improving the digital skills of the future workforce with initiatives such as technology scholarships, training and upskilling for digital skills for communities in need. Contributions towards DSR by the companies will be given tax deduction.
  • The Government will continue providing funds of RM10 million to MDEC to train micro-digital entrepreneurs and technologists to leverage on e-Marketplaces and social media platforms to sell their products. 100 of these micro-digital entrepreneurs, a majority of whom are women and youth, were able to generate RM23 million in revenues over just 6 months, unleashing life changing experiences.
  • To significantly increase the number of Malaysians, participating merchants and SMEs to use e-wallets, the Government will offer a one-time RM30 digital stimulus to qualified Malaysians aged 18 and above with annual income less than RM100,000. All you need is to own an identity-verified e-wallet account with selected service providers. The one-time digital stimulus per person can be redeemed and used for a two-month period commencing 1 January 2020 and expiring on 29 February 2020. The Government will allocate up to RM450 million to Khazanah Nasional to implement this digital stimulus, which will benefit up to 15 million Malaysians.


Strengthening Access to Financing for Businesses

  • To better facilitate access to financing for SMEs in priority segments, the Government will implement enhancements to the Skim Jaminan Pinjaman Perniagaan (SJPP). For Bumiputera SMEs, export-oriented SMEs and SMEs investing in automation and digitalisation, the Government guarantee will be increased from 70% to 80% and in addition, will reduce the guarantee fee to only 0.75%. A new SJPP allocation of RM500 million in guarantee facility will also be launched, earmarked for women entrepreneurs.
  • In the era of fintech, Bank Negara Malaysia (BNM) is finalising the licensing framework for digital banks to be issued by year end for public consultation. The final framework will be issued by the first half of 2020 to invite applications.
  • The Government will support and encourage new digital financial innovations such as Equity CrowdFunding (ECF) and Peer-to-Peer (P2P) platforms. Collectively, more than RM430 million was raised as at June 2019, benefitting more than 1,200 SMEs. Building on this early success, the government will further allocate an additional RM50 million to My Co-Investment Fund (MyCIF) under the Securities Commission Malaysia to leverage such platforms to help finance the underserved SMEs.
  • The Government will continue to support strategic projects through financing programmes under Bank Pembangunan Malaysia Berhad, offering a 2% interest subsidy per annum via:
    • the Sustainable Development Financing Fund size increased from RM1 billion to RM2 billion;
    • the RM1 billion Maritime & Logistics Fund; and
    • the RM2 billion Industry Digitalisation Transformation Fund which will now also support the implementation of connectivity projects.
  • The Government will make available up to RM1 billion worth of customised packaged investment incentives annually over 5 years, as part of the strategic push to attract targeted Fortune 500 companies and global unicorns in high technology, manufacturing, creative and new economic sectors. To qualify, these companies must invest at least RM5 billion each in Malaysia which will generate additional economic activities that will support our Small Medium Enterprises (SMEs), create 150,000 high quality jobs over the next 5 years and strengthen our manufacturing and service ecosystems.
  • The Government will allocate RM11 million towards initiatives by the Ministry of Education in collaboration with Ministry of Environment, Science, Technology and Climate Change (MESTECC) to inculcate the Science, Technology and Innovation (STI) culture, encouraging more students into the fields of Science, Technology, Engineering and Mathematics (STEM).
  • Digital Services Tax will be implemented with effect from 1 January 2020 to include services such as but not limited to downloaded software, music, video or digital advertising.

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