Budget 2014: Significant for 2015

Malaysia's Budget 2014 announced on Friday 25 October 2013 is significant.

1. The Budget prepares the ground for a major tax reform in 17 months' time when the proposed 6% GST (Goods and Services Tax) will be implemented on 1 April 2015 and presumably the proposed income tax reduction will also be applicable for the assessment year 2015.

For this reason (that it is still in the future) that we cannot get the details for these tax proposals, except for these:

>GST will not be imposed on basic food items such as rice, sugar, salt, flour, cooking oil, lentils, herbs and spices, salted fish, cencalok, budu and belacan; nor piped water supply on the first 200 units of electricity per month for domestic consumers;nor services provided by the Government such as the issuance of passports, licences, health services and school education; nor transportation services such as bus, train, LRT, taxi, ferry, boat, highway toll as well as education and health services; nor sale, purchase and rental of residential properties and selected financial services.

Individual income tax rates will be reduced by 1 to 3 percentage points for all tax payers. Families with monthly income of RM4,000 will no longer have tax liability (from RM3,000). Individual income tax structure will be reviewed to with the chargeable income subject to the maximum rate raised from exceeding RM100,000 to exceeding RM400,000. The current maximum tax rate at 26% will be reduced to 24%, 24.5% and 25%. Corporate income tax rate be reduced by 1 percentage point from 25% to 24%. These measures will be effective from 2015.<

Since these proposals will be implemented in the future, there will be time for things to be adjustment presumably according to the more refined calculations in Budget 2015 in twelve months' time.

Nonetheless, I am happy that there is thought of a significant structural adjustment to the personal income tax structure which I think is long overdue as a result of the persistence of strong inflationary pressures in the economy. I like the shift of the top chargeable income bracket from RM100,000 to RM400,000 which is very much to be applauded.


2. The other significant measure of Budget 2014 is the serious attempt at reining in the escalation of property prices in Malaysia.

> The Real Property Gains Tax (RPGT) will be reviewed. For RPGT is raised to 30% for properties disposed up to three years, 20% up to four years, 15% up to five years and no RPGT after five years for citizens and 5% for companies. For non-citizens, 30% RPGT for properties disposed up to 5 years and 5% in the sixth and subsequent years. The minimum price of property that can be purchased by foreigners is raised from RM500,000 to RM1,000,000.

Developers cannot implement projects with features of Developer Interest Bearing Scheme (DIBS), where developers incorporate interest rates on loans in house prices during the construction period, and financial institutions are prohibited from providing final funding for such projects.<

It is still unclear when this will come into force. But this is significant.

Developers and financial institutions seem to be in cahoot serving their own vested interests at times when the talents of financial institutions should be trained at developing the fundamentals of the economy. I am sure there will be plenty of counter-arguments by these two major types of institutions which so far have been quite happy to be calling all the shots in the economy. I am glad that someone has finally stood up to try to correct the situation. Of course, recent property price increases were due to higher building material costs and greater demand, etc. But there must be some control.

The rest of the Budget, as the man himself said, is a post-election budget which means that as many projects so promised will be mentioned. Including national security, education, etc. There is of course whether the sums allowed are sufficient to do their proper jobs. That may be for future budgets to deal with as typically development projects takes several years to finish. The success of the collection of the GST will determine the degree of completion of those projects and others.The government deficit is likely to be significantly unchanged as of now, with hope that the GST will be the answer to all problems, as the advisers will surely reassure the PM as such.

I don't quite like the racial stuff though.

I think Budget 2014 is a significant budget for 2015.