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Malaysia Budget 2021

6 Nov 2020 PDF
Subject Business alert
Jurisdictions Malaysia

At RM322.5b, Budget 2021 is the largest budget in Malaysian history and generally did not see any new taxes being proposed or any existing taxes being increased. It is a fit-for-purpose Budget which meets the immediate needs of the country to encourage recovery, growth and investment. It is now key to monitor and measure the implementation of the Budget closely against the desired objectives. As we saw at the beginning of this year, the COVID-19 pandemic has created significant uncertainties and economic conditions may change very rapidly. As such, the Government needs to be agile and prepared to revisit and supplement the Budget measures as and when necessary.   

Budget 2021 continues to address the immediate needs of the most vulnerable, through continuation of targeted stimulus measures, especially for the B40 group. As a result of the stimulus packages and the Budget 2021 proposals, the Government expects the economy to grow by between 6.5% and 7.5% in 2021, representing a significant improvement from the projected contraction of 4.5% in 2020.

I am encouraged to note that the development of the Budget has been underpinned by the key principles of unity, resilience and sustainable growth.
Dato’ Abdul Rauf Rashid
EY Malaysia Managing Partner

To spur this growth, the Government has proposed various new and enhanced incentives designed to make Malaysia more attractive to foreign investors. On this, we saw a proposed extension of the Principal Hub incentive with relaxed conditions and the introduction of a new Global Trading Centre incentive. The PENJANA proposal of a preferential tax rate for selected manufacturers has also been extended to 2022 and the scope has been extended to cover selected services, particularly high technology, research and development and medical-related services. These proposals, combined with the proposed relaxation to the licensed manufacturing warehouse and free zone regimes, will certainly enhance Malaysia’s attractiveness, particularly as a supply chain hub.

The Government continues to take a strategic long-term view by providing the highest allocation of the Budget to the education sector for the third year in a row. The allocation for development expenditure is also encouraging, at more than 40% of public expenditure, the highest in 10 years. The development expenditure budget sees RM15b allocated for key infrastructure projects such as the Pan-Borneo highway, the Gemas-Johor Bharu double-tracking and electrification project, and Phase 1 of the Klang Valley Double Track project, to spur spending in the short term. The building of a strong infrastructure network, including an upgrade of broadband infrastructure, is also noteworthy.