A Budget for growth

Green initiative: The third-party access concept will continue in the form of Corporate Green Power Programme where participants can produce and sell renewable energy to their off-takers via the grid.

BUDGET 2024 touches on a few key areas the government believes will drive the transformation and growth of Malaysia’s economy, as well as strengthen the nation’s competitiveness in the global market. We present some of the highlights here:

Energy transition

THIRD-PARTY access (TPA) to the national electricity grid is a tricky issue. It needs to happen in order to hasten investment and innovation that will be driven by the private sector in building up the country’s renewable energy (RE) base.

However, this means nudging the owner of the grid, Tenaga Nasional Bhd (TNB), to open up the grid to third parties on fair access terms and it can only be done by the Energy Commission (EC), which is an agency of the government.

Budget 2024 notes that the TPA concept will continue in the form of the Corporate Green Power Programme (CGPP).

Recall that Malaysia has a 800-megawatt (MW) CGPP programme, of which the EC has already allocated the bulk of it to 22 bidders.

Under the CGPP, participants are able to produce RE and sell it to their off-takers via the grid. However, it is not a full-blown TPA in the sense that there is a limitation of the 800MW that can flow through the grid.

A full-blown TPA is when the wheeling charges by TNB are made clear for RE producers to pay and use the grid.

Budget 2024 says the government will continue to explore the TPA model and develop appropriate implementation methods for the TPA to drive investments in the RE sector. That clearly indicates the EC will be coming up with the TPA terms soon.

Meanwhile, the budget also repeated the proposal to allocate RM2bil for an energy transition fund. As explained earlier by the government, this money is a form of catalytic blended finance to support private financing for projects that are marginally bankable or yielding below-market returns.

The question is how easily accessible this RM2bil will be to the private sector.

The budget also mentions that RM200bil is being allocated by financial institutions for industries to move into a low-carbon economy. But as we currently know, the funding gap for energy transition remains big and it is left to be seen how aggressive this funding will be.

Capital gains tax

AS expected, a 10% capital gains tax is being proposed in the budget for the sale of shares in private companies, with a few notable exceptions. This doesn’t come as a surprise as it was mooted by the government earlier.

After taking into account the input of all stakeholders, the government is proposing a 10% tax on the net profit from the sale of shares in a privately held company and this will take effect from March 1, 2004.

Exemptions the government will consider include private companies that are approved to list on Bursa Malaysia or those that are undergoing internal restructurings as well as those that involve investments by approved venture capital funds. These exemptions are crucial so that it does not penalise capital raising by growth companies.

It is aimed at taxing more mature companies and rightly so, as some vendors could be earning hefty sums in selling their established businesses. It is also assumed that aside from venture capital funds, private equity funds will also be exempted from this tax. If not, it would be a big disincentive for private equity to be active in Malaysia.

Recall that there has been discussions whether Malaysia should impose a capital gains tax from the sale of listed shares in the country. Promoters of this view say that it is only fair for those making profits from their stock market gains to be taxed on it.

They add that since many investors also lose money on the local stock market, it sort of balances things out, as their losses can be offset against the tax from their gains.

Detractors say such a tax would depress our already dampened stock market, chasing both local and foreign investors away. Some even reckon the fact that the total tax receipts will be small compared to the loss in market capitalisation of the local bourse if such a tax is to be imposed.

Consolidating venture capital ecosystem

IN the tech space, one notable proposal is for two investment bodies that currently come under the Finance Ministry to be placed under the purview of Khazanah Nasional Bhd.

Budget 2024 is proposing that in order to strengthen the venture capital environment, Penjana Kapital and Malaysia Venture Capital Management (Mavcap) be placed under Khazanah. It looks like the government is looking at consolidating these bodies.

Khazanah itself has its own venture capital fund called Dana Impak, which has a RM6bil commitment over five years to invest in the digital society, quality health and education as well as food and energy security.

Sources say the plan is to merge all three bodies into one stronger venture capital outfit. It is possible that the move is in line with the government’s plan to have a single window.

Recall that Economy Minister Rafizi Ramli is advocating a single window for startups in Malaysia. He has pointed out that there are at least 14 different government agencies in the startup ecosystem.

He envisages this single window to have everything related to startup and with agencies operating within their clusters of responsibilities to be connected to it.

Rafizi eschews the situation where startups have to spend a lot of time and effort looking for the support from a variety of government agencies and has also pointed out that a complicated system gives incentives to the wrong people to thrive.

The merger or at least parking of these three government-funded venture capital funds under Khazanah does seem in line with the single-window move. The only thing that does not sit well is that the people within those organisations do not seem to know the game plan.

Perhaps that is to follow after this budget proposal. Communication and buy-in from all stakeholders will be crucial for this single-window plan to work nicely.

Meanwhile, the government has strengthened its resolve to reform various government agencies and institutions including the merger of three development financial institutions (DFIs) through the merger of Bank Pembangunan Malaysia Bhd, Small Medium Enterprise Development Bank Malaysia Bhd (SME Bank) and Export-Import Bank of Malaysia Bhd (Exim Bank).

In 2019, the government announced plans to consolidate four DFIs including Danajamin Nasional Bhd to enhance the DFI ecosystem.

The first phase of the merger was completed in November 2021, involving Bank Pembangunan acquiring all shares of Danajamin.

The emphasis on the reformation in Budget 2024 indicates a possible acceleration of the merger move.

The second phase involves the merger of Exim Bank and SME Bank into the earlier merged entity.

The merged DFIs will enhance lending capacity to industries and businesses, especially SMEs that are facing difficulties in getting funding from financial institutions.

Islamic finance boost

THE government has proposed to give tax exemptions for income generated from the selling of Islamic securities as part of its efforts to enhance the syariah-compliant stock market.

It has also allocated RM20mil to support research and innovation within the Islamic economy.

Additionally, to support the development of Labuan International Business and Financial Centre as an Islamic financial centre, it is also proposing to tax-exempt for five years all Labuan entities that carry out Islamic finance-related businesses such as Islamic digital banking and Islamic digital token production.

Industry players say this is timely as Islamic finance has seen growth that has outpaced its conventional peers, currently making up around 40% of total financing in the country.

According to the Finance Ministry’s 2024 Economic Outlook report, total Islamic financing outstanding expanded by 9.1% to RM884.1bil as at end-July, outpacing growth within the traditional banking sector.

Within Malaysia’s capital market, the Islamic capital market continues to play a key role.

Yields that are seen as competitive alongside strong regulatory processes are among the factors that have been supporting its growth.

“Efforts to boost the Islamic finance is a move in the right direction as over time, the sector is expected to play an even more important role,” says a banking analyst.

As Malaysia has already carved a niche and reputation in Islamic finance, it makes sense to put more efforts in this area, he adds.

CIMB Group Holdings Bhd group chief executive officer Datuk Abdul Rahman Ahmad says the lender supports the government’s focus on driving more active market participation as well as equitable distribution of wealth among the rakyat through value-based intermediation (VBI).

Unlike conventional banking concepts, VBI follows syariah rules to determine its focus, values and priorities.

Pumping up tourism

VISIT Malaysia Year has been set for 2026, with a target of 26.1 million foreign tourists and a domestic spending amounting to RM97.6bil.

In line with this, the government has set aside RM350mil to step up tourism promotional activities, which include the sponsorship of the Visit Malaysia 2026 campaign as well as aids and grants to the relevant parties.

These include aids to about 200 cultural activists for them to organise arts and cultural activities as well as funds for the Islamic Tourism Centre to develop Muslim-friendly tourism in the country.

Such moves will certainly help sustain the growth momentum within the local tourism sector that had been hit badly during the duration of the Covid-19 pandemic.

Earlier this year, most did not think that Malaysia would be able to achieve its 16.1 million target of international tourists.

However, in August, Tourism Malaysia director-general Datuk Dr Ammar Abdul Ghapar was quoted as saying that the country is poised to surpass its international tourist arrival target for this year by achieving at least 18 million visitors, surpassing the 16 million target.

He said this is based on various factors which include the increase in flight frequencies, expansion of chartered operating flights and the much-anticipated year-end holidays.

Last year, Malaysia recorded some 10 million international tourist arrivals, who collectively spent RM28.2bil.

One of the key countries that the country is expecting its tourists to come from is, not surprisingly, Singapore. The city-state is currently the highest contributor, with about four million tourist arrivals up to July.

In order to achieve and exceed its tourist arrival targets, Malaysia needs to not only have its infrastructure on par with other developed countries but issues such as personal safety should also be prioritised.

Lifting SMEs

THE small and medium enterprise (SME) segment, which accounts for about 97% of total businesses in the country, has received a shot in the arm under the Budget 2024.

Realising the importance of this segment as the backbone of the nation’s economy, the government has allocated financing of up to RM44bil in total value of loans and funding guarantees for the benefit of micro, small and medium enterprises (MSMEs) in 2024.

Micro entrepreneurs and small traders will be provided with financing facilities under three agencies – Bank Negara, Bank Simpanan Nasional (BSN) and National Entrepreneur Group Economic Fund (Tekun) – with a total fund of RM2.4bil.

The RM1.4bil under the BSN micro loan is for business capital, purchase of equipment and premises, as well as for hawkers and small entrepreneurs in marketing. The RM330mil under Tekun is for financing facilities for small traders, of which RM30mil is specifically to finance businesses run by the Indian community.

The budget for SMEs also saw as much as RM720mil dedicated to encouraging women and youths to venture into businesses.

Under Bank Negara, a total of RM8bil in loans would be provided to assist SMEs, of which RM600mil is dedicated to micro and low-income entrepreneurs, small contractors, application for sustainability practices and food security sectors.

For 2024, RM600mil would be available under Khazanah’s Dana Impak Fund to promote the growth economy and provide more opportunities to rural communities, partially urban and under priviliged groups to have access to financial services.

To support the function of Amanah Ikhtiar Malaysia, which strives to eradicate poverty, the government would allocate RM100mil in funding.

These initiatives are crucial to support the growth of SMEs in Malaysia, for it is well-documented that SMEs have long faced considerable difficulty in gaining access to loans or financing and this has been a major challenge for them in growing their business.

Hence, with a range of financing options made available next year, SMEs will have even better growth opportunities.

Reinforcing plantation commodities

WHILE most private plantation players are disappointed with the lack of incentives under Budget 2024, government agencies namely Felda, Felcra and Risda have emerged as the major beneficiaries with a hefty RM2.4bil allocation.

This clearly reflects the unity government’s interest to further boost the agri-commodity activities and increase the socio-economics of smallholders.

As of June this year, the agri-commodity sector contributes RM38bil or 5% of the country’s gross domestic product and RM77.4bil (11%) to national exports.

In the plantation sector, the government is most concerned with the high rate of old-age oil palm trees.

By 2027, the area of palm trees of more than 25 years is expected to reach over 560,000 hectares, thus affecting productivity of fresh fruit bunch with a loss of RM7bil per year. Hence, RM100mil has been allocated under the Palm Replanting Programme incentive, which will be in the form of grants and loans to 7,000 small private oil palm planters.

To counter the challenges from the impact of non-tariff barrier implementation by importing countries on palm oil, Budget 2024 has provided RM70mil to increase the level of sustainability of the industry as well as intensifying anti-palm oil campaign on the international stage.

For the rubber sector, some RM10mil has been allocated to implement pilot project for the use of stimulant gas for the benefit of small rubber farmers in 1,000ha farm.

The Malaysian Rubber Board recently has successfully developed a method on the use of stimulant gas that can catalyse rubber production up to three times in addition to being able to increase the lifespan of tree rubbers up to 25 years.

The government has also agreed to raise the price level activation of Rubber Production Incentive (IPG) to RM3 per kg with an allocation of RM400mil. Recall in Budget 2023, the government raised IPG price level activation to RM2.70 from RM2.50 per kg previously.

Meanwhile, RM90mil has been allocated to Risda and Felcra to encourage smallholders to optimise the use of farmland through the production of food crops and livestock such as mushrooms, pineapples, matag coconuts, cows and chickens.

In addition, to increase the productivity of plantation products and reduce dependence on foreign labour through mechanisation and automation such as drones and self-driving vehicles, the scope of tax incentives for automation will be expanded to cover the commodity sector under the Plantation and Commodities Ministry.

Bolstering port facilities

THE development of transportation and logistics infrastructure is crucial in attracting foreign investments to the country.

As such, the government is allocating a total of RM70mil to enhance port ecosystem and efficiency.

Under the budget, the government has called for a request for proposal for the proposed development of a third port terminal in Carey Island, Klang.

Transport Minister Anthony Loke recently said a feasibility study was carried out to identify a suitable site for the construction of a new port to be developed there, as Northport and Westports have almost reached their maximum capacity.

The project is expected to bolster Port Klang as a major shipping hub for the Asia-Pacific region.

The Port Klang Authority (PKA) general manager K. Subramaniam said previously the construction of a cargo port, estimated to cost RM28bil on Carey Island, is scheduled to be completed by 2060.

He said the third port would serve as a back-up area for the existing port that would serve as a base for manufacturing activities and other value-added logistics services.

The port is slated to handle 36 million 20-ft equivalent units (TEUs) a year. In 2022, Port Klang handled about 13.2 million TEUs.

It is also timely that the government is allocating a grant of RM50mil jointly with PKA to maintain the roads leading to the port, which are in terrible condition due to usage by heavy vehicles. There will also be weight restrictions on heavy vehicles plying the route.

An additional RM20mil will be jointly provided with PKA to upgrade the Malaysia Maritime Single Window system, which aims to unify the business community to the port via an integrated digital portal with other government agencies.