Budget 2017 – Preparing New Entrepreneurs into Digital Economy

Contributed by our partner, Cheng & Co Cheng & Co | Website

The recent Malaysian Budget 2017 announcement on 21st Oct 2016 with the theme “Accelerating Growth, Ensuring Fiscal Prudence, Enhancing Well-being of the Rakyat” is the second budget announced under the 11th Malaysian Plan and was announced by our Prime Minister, Datuk Seri Najib Razak. It estimated a 3% increase to RM219.7 billion for Budget 2017 compared to Budget Recalibration 2016 exercise because of the fall of oil prices causes a loss of RM30 billion on Government’s revenue. As for the expenditure, the budget allocates a total of RM260.8 billion, excluding RM2 billion contingency funds compared with RM267.2 billion in 2016. Of this amount, RM214.8 billion is for Operating Expenditure (RM77.4 billion allocated for emolument with an increase of 8.9%) and RM46 billion for Development Expenditure. Both of it sees a decrease of 0.2% and 11.53% for Operating Expenditure and Development Expenditure compared to last year. Additionally, the Government will be expecting to achieve a fiscal deficit target of 3% of GDP in 2017 compared with 3.1% this year.

2016 is definitely a challenging year for all SMEs and the Malaysia economy as a whole. Everyone is witnessing a slow growth in the economy and with the low consumer spending; it does not help much in invigorating the market. For all intents and purposes, eyes were heavily focus whether there are any changes on the Goods and Services Tax as rumours are circulating wildly on the increase of the tax rate however, the Prime Minister has successfully brushed off the hearsay that there is not any increase in GST tax rate and still remains at 6%. It may seem a sort of relief to some but most SMEs are hoping for a decrease.  Datuk Seri Najib has further announced the total collection from Goods and Services Tax (GST) as of 19th October 2016 has reached nearly RM30 billion.

Budget 2017 will definitely be a challenging yearly budget as what has been described by our Prime Minister, one should plan and prepare during the first seven years, while facing the subsequent seven years of challenges in order to sustain economic resilience. Economic sector definitely has to focus to expand their business globally in this ever challenging wide arena and one of the key drivers to the future economy will be Digital Economy and E-business. The economic sector receives the highest share of RM25.9 billion from the Development Expenditure of RM46 billion.

The Government had declared that the year 2017 to be the Startup & SME Promotion Year further proves that the Government acknowledges that SMEs indeed an important role in significantly contributing to nation growth’s and labour market. To proves this, the Budget 2017 will see a invigoration for startups with a total of 200 million from the Working Capital Guarantee Scheme (WCGS) Fund specifically allocated for new startups. As for encouragement towards investment in high technology startups, a new pass category named Foreign Knowledge Tech Entrepreneurs will be introduced to help the startup to grow rapidly.


Furthermore, a new scheme has been specifically introduce for the year of assessment 2017 and 2018 which provides a reduction by stages based on a percentage in income compared to the previous year of assessment. The reductions in income tax are as follows:

  • One percentage point for increase in chargeable income between 5% to below 10%;
  • Two percentage point for increase in chargeable income between 10% to below 15%;
  • Three percentage point for increase in chargeable income between 15% to below 20%; and
  • Four percentage point for increase in chargeable income of 20%.

Additionally, SME’s tax rate on chargeable income up to the first RM500,000 is reduced by 1% from the current 19% effective from year of assessment 2017. To further boost the local vendor development programme in the manufacturing and services sectors, double deduction on expenses incurred by the anchor company will be extended until 31st December 2020.

In the recent SME CEO Forum 2016, Dato’ Seri Ong Ka Chuan has said that export activities are utmost important and SME are urged to expand globally and to further encourage exports and development of SMEs, the Government will allocate a total of RM75 million to implement programmes under the SME Master Plan and additionally guarantee up to RM15 billion is provided under the various sheme of Syarikat Jaminan Pembiayaan Perniagaan (SJPP) to be extended until 2025. There will be good news to the export-oriented SMEs as the Government has been promoting export Malaysia made products all this years and in this budget 2017, the Government will provide a 2% rebate on interest rate charged to SME borrowers under SJPP scheme and is limited to a total accumulated funding of RM1 billion which involves an allocation of RM100 million for a period of five years.

E-businesses are a hot trend and we are definitely entering into Digital Economy age. In order to have a vibrant Internet Economy, the Government has announced that with effective on January 2017, fixed line broadband service users will be getting twice the speed for the same price as digital inclusivity is the key driver to move to a larger economy. The Government will be revitalize the eUsahawan and eRezeki programmes under the Malaysia Digital Economy Corporation (MDEC) comprising 300,000 participants with an allocation of RM100 million. These initiatives were launched last year to target key communities such as youth, SMEs, digital entrepreneurs and the B40 and benefited 100,000 Malaysians and according to Dato, Yasmin Mahmood, CEO of MDEC, they are expecting more people to benefit in the coming years. Moving forward, Malaysia will be the first country in the world to introduce the Digital Free Trade Zone; a step closer in becoming a fully sustainable developed digital economy nation.

To read more, visit http://chengco.com.my/wp/2016/11/03/budget-2017-preparing-new-entreprenuers-digital-economy/