Malaysia - Budget 2017

Transcription

1 A People-Friendly and Pro-Business 2017 Budget Budget focuses on the concept of People and Capital Economy The Budget 2017 focuses on continued strategies and measures to support the concept of People s Economy and Capital Economy, as highlighted in previous years Budgets. Another concept called public happiness was announced in Budget 2017, where the Government aims to improve and enhance the standard and quality of people's life. Similarly, Budget 2017 also implemented traditional budget approach of probusiness strategies to ensure the sustainability of medium- to long-term economic growth. Economic Update Malaysia - Budget 2017 Measures to support people s economy and private consumption In this people-centric Budget 2017, the Government has continued to give attention to the rising cost of living issues, and at the same time providing incentives which will help support private consumption. To benefit the bottom 40% household income group (B40), the government will increase the 1Malaysia People's Aid (BR1M) payment, where the quantum will be raised by between RM50 and RM200 for all the eligible groups. Various measures to increase home ownership for first time buyers In Budget 2017, Government has also addressed home ownership issues on B40 and M40 groups, where among the measures announced are provisions of more affordable houses, access to financing on affordable houses as well as stamp duty exemption for first time home buyers. We believe Government s collaboration with BNM, EPF and banks in assisting first-time homebuyers to get financing is a positive measure. Private investment to be supported by infrastructure projects The Budget 2017 contains a series of measures to assist the private sector and Malaysian companies, including incentives and tax measures to promote private investment. The corporate tax rate will be reduced for companies on a tiered basis by increasing their chargeable income for 2017 and 2018, resulting in tax savings for corporates. Tax and expenditure for 2017 Budget is still expansionary While generous measures were introduced for the people and business, the tax and expenditure programme in Budget 2017 also involves striking the appropriate balance between fiscal consolidation and supporting the economy. However, the focus of sustaining economic growth in Budget 2017 (through higher total government expenditure and stimulus measures) still takes slightly more precedence over fiscal deficit reduction, due to risk to global growth on the domestic economy. Setting up of Collection Intelligence Arrangement (CIA) The Collection Intelligence Arrangement (CIA) was set up, involving collaboration between Inland Revenue Board (IRB), Royal Malaysian Customs Department and Companies Commission of Malaysia (SSM) in sharing of data and information, which will improve on efficiency in tax collection, tax audit and tax compliance, where the move may encourage companies to be more transparent. Budget 2017 focuses on long run strategies to propel the economy Apart from the introduction of the first Digital Free Zone in the world, the Government will also launch a series of national discourse to chart the nation s direction on a new growth path, which will be known as the 2050 National Transformation, partly for the development of small and medium enterprises (SMEs) in the country through investment strategies. Economic Research (603) alan.tan@affinhwang.com yeeping.lim@affinhwang.com Page 1 of 10

2 A People-Friendly and Pro-Business Budget 2017 Budget 2017 also focuses on long term economic sustainability The Budget 2017 focuses on continued strategies and measures to support the concept of People s Economy and Capital Economy, as highlighted in previous years Budgets. Another concept called public happiness was announced in Budget 2017, where the Government aims to improve and enhance the standard and quality of people's life, see Fig 1. Similarly, Budget 2017 also implemented traditional budget approach of pro-business strategies to ensure the sustainability of medium- to longterm economic growth. Fig 1: People s economy and Capital economy Budget 2017 Strategies and Measures People Economy Capital Economy Public Happiness covering priorities and interests of the people such as cost of living, household income, education opportunities, employment and business, quality of life, skills training, entrepreneurship as well as security and safety refers to economic management and policies, such as economic management based on capital, GDP growth, per capital income, private investment, capital market, corporate profits, sovereign and credit ratings, Bursa covering what matters most to the ordinary people, such as jobs, small businesses, the cost of living, lifelong learning, family well-being, social inclusion and harmony, and issues such as crime, traffic, pollution and work-life balance. index and share value. Source: Budget speeches Measures to support people s economy and private consumption In this people-centric Budget 2017, the Government has continued to give attention to the rising cost of living issues, and at the same time providing incentives which will help support private consumption. To benefit the bottom 40% household income group (B40), the government will increase the 1Malaysia People's Aid (BR1M) payment, where the quantum will be raised by between RM50 and RM200 for all the eligible groups, see Fig 2. However, no additional eligible groups were announced or added to the programme. The government will allocate around RM6.8bn for BR1M payment in 2017, an increase of nearly 26% yoy from RM5.4bn in 2016, which will benefit about 7m recipients, compared to about 7.3m recipients in Fig 2: BR1M by the Government RM BR1M 1.0 BR1M 2.0 BR1M 3.0 BR1M 4.0 BR1M 5.0 BR1M 6.0 (B2012) (B2013) (B2014) (B2015) (B2016) (B2017) Households earning <RM3,000 per month ,000 1,200 Households earning RM3,000-4,000 per month Single unmarried individuals aged 21 and earn <RM2, per month Participants in e-kasih database with earning <RM1,000 per ,050 1,200 month Allocation (RMbn) Source: Budget 2017 In addition, while there was no reduction in personal income tax rate, the Budget measures announced for taxpayers include extension of lifestyle tax reliefs of RM2,500 to include the purchase of printed newspapers, smartphones and tablets, internet subscriptions as well as gymnasium membership fees, to be effective YA2017. Government has also announced special assistance of RM500 to all civil servants and RM250 to government retirees. Together with lower EPF employee contribution (as announced in January s 2016 revised Budget) until December 2017, we believe these measures aiming to increase household disposable income will help to support private consumption in Page 2 of 10

3 Apart from providing cash assistance, Government also moderated the cost of living pressure by continuing some of the remaining subsidies and incentives programme, as well as improving social safety nets, as highlighted below, which will alleviate the concern of higher inflationary pressure. Fig 3: Budget measures - subsidy, incentives and social safety nets Subsidy and incentives (RM10bn) Paddy farmer including price subsidy, seed subsidy, fertiliser subsidy (RM1.3bn) Rubber smallholders: Rubber Production Incentive (RM250m) Rainy Season Assistance of RM200 monthly for 3 months to 440,000 smallholders (RM260m) Fishermen living allowance RM200 to RM300 monthly to 57,000 fishermen (RM250m) Cooking gas subsidy (RM1.6bn) Electricity subsidy (RM124m) Social safety nets Assistance to poor families benefitting 69,000 families: General assistance up to RM300 per month Children assistance up to RM450 per month Socioeconomic assistance of RM300 to senior citizens benefitting 120,000 senior citizens Assistance to the disabled (PWD): employee allowance; disabled children training allowance; assistance for PWDs who are unable to work benefitting 150,000 PWDs (RM535m) Direct GST exemption to registered PWDs to purchase aid equipment without going through Private Welfare Entities as well as wider scope of exemption Increase allowance of village heads, chairman of Village Development and Security Committee including heads of New Villages and Orang Asli to RM900 Source: Budget 2017 Various measures to increase home ownership In Budget 2017, Government has also addressed home ownership issues on B40 and M40 groups, where among the measures announced are provisions of more affordable houses, access to financing on affordable houses as well as stamp duty exemption for first time home buyers, see Fig 4. We believe Government s collaboration with BNM, EPF and banks in assisting first-time homebuyers to get financing is a positive measure to alleviate the financing difficulty of these groups. Fig 4: Budget measures on housing-affordability Increase home ownership Build 5,000 units of MyBeautiful New Home through National Blue Ocean Strategy (NBOS) for B40 at RM40,000 to RM50,000 per unit - the Government will finance RM20,000 while the remaining will be paid as installments by the owners (RM200m) Build 9,850 new PPR houses in 2017 (RM134m) 11,250 PPR houses are being built (RM576m), to be sold at between RM35,000 and RM42,000, even though actual construction cost is between RM120,000 and RM160,000 Build 30,000 units on Government lands at strategic locations at RM150,000 to RM300,000 Build 10,000 houses in urban areas for rental below the market rates at maximum five years to eligible youths with permanent jobs Build 5,000 units of SPNB People's Friendly Home (RMR) with subsidy of RM20,000 per unit (RM200m) Special step-up end-financing scheme for PR1MA houses, in collaboration with BNM, EPF & banks to help the buyers get total loan up to 90% and 100% Stamp duty exemption on instruments of transfer and loan agreement for first time home ownership for the period 1 January 2017 until 31 December 2018 Provide allocation for Second-Generation House infrastructure development: FELDA (RM200m), FELCRA (RM100m) & RISDA (RM100m) Civil servants' housing needs Increase the public servants' housing loan eligibility from between RM120,000 and RM600,000 to between RM200,000 and RM750,000 Complete 30,000 units of 1Malaysia Civil Servants Housing (PPA1M) with selling price between RM90,000 and RM300,000, which is 20% below market price Source: Budget 2017 Page 3 of 10

4 Private investment to be supported by infrastructure projects The Budget 2017 also contains a series of measures to assist the private sector and Malaysian companies, including incentives and tax measures to promote private investment. Government has also announced the upgrading and reconstruction of infrastructure and socioeconomic development, see Fig 5. Fig 5: Budget measures to support private investment Stimulate private investment Upgrading of Jalan Lok Kawi Pengalat Papar, Sabah Upgrading of Jalan Kampung Keruak Gua Musang Kuala Berang Construction of Batang Lupar Bridge, Sri Aman Reconstruction of Sandakan Power Station Project An allocation of RM2.1bn to the five economic corridors, namely Iskandar Malaysia, Northern Corridor Economic Region (NCER), East Coast Economic Region (ECER), Sabah Development Corridor (SDC) and Sarawak Corridor of Renewable Energy (SCORE) An allocation of RM522m to Malaysian Investment Development Authority (MIDA) funds for identified sectors Public transport Implementation of the new East Coast Rail Line (600 km) project connecting Klang Valley to the East Coast (estimated cost: RM55bn) Accelerate the implementation of Pan Borneo Highway in Sabah and Sarawak Restore the East Coast railway line along Gua Musang Tumpat (RM100m) Increase frequency of ETS service purchase of 19 sets train (RM1.1bn) Source: Budget 2017 This was in addition to various infrastructure projects involving public transport to improve connectivity, such as to accelerate the implementation of Pan Borneo Highway in Sabah and Sarawak, as well as implementation of the new East Coast Rail Line project with an estimated cost of RM55bn. We believe this will help sustain private investment growth and as part of transformation into a high-income nation by Furthermore, Malaysian Investment Development Authority (MIDA) will be allocated a fund of RM522m to provide funding to identified industries in moving up the global value-chain and improve competitiveness through R&D and adoption of technology and innovation. Sub-sectors with potential high-end manufacturing include electrical and electronics (E&E), aerospace, green technology and medical devices. Fig 6: Corporate and personal income tax Personal income tax Corporate income tax SMEs* Corporate income tax - large enterprises** Chargeable income (RM) YA2015 YA2016 YA2017 YA2015 YA2016 YA2017 YA2015 YA2016 YA , ,001-20, ,001-35, ,001-50, ,001-70, , , , , *** 250, , , , , , ,001-1,000, *** Exceeding 1,000, Source: Inland Revenue Board (IRB) * A company with paid up capital of up to RM2.5m or a Limited Liability Partnership (LLP) with total contribution of capital up to RM2.5m ** A company with paid-up capital of more than RM2.5m or a Limited Liability Partnership (LLP) with total contribution of capital more than RM2.5m *** Reduction in CIT based on a percentage increase in income based on previous YA, please refer to Fig 7 Some cut in corporate income tax on a tiered basis for 2017 and 2018 We had earlier anticipated that the government will preannounce another 1 percentage point broad based cut in corporate income tax earned in 2018, while it did not materialize, there was a welcome surprise for companies by the Government. Page 4 of 10

5 Budget 2017 announced that the corporate tax rate will be reduced for companies on a tiered basis by increasing their chargeable income for 2017 and 2018, resulting in tax savings, see Fig 7. Fig 7: CIT treatment for annual percentage increase in income Percentage of increase in chargeable income as compared to the immediate preceding YA Percentage point reduction Income tax after reduction (%) Less than 5.00 NIL and above Source: Budget 2017 Note that this is applicable for YA2017 and YA2018 Budget 2017 focuses on long run strategies to propel the economy Over the longer run, to propel the economy into an advanced economy, Government is focusing on digital connectivity, which currently contributing nearly 16% to GDP, with the introduction of the first Digital Free Zone in the world. This strategy will merge physical and virtual zones, with additional online and digital services to facilitate international ecommerce and invigorate internet-based innovation. Apart from that, the Government will launch a series of national discourse to chart the nation s direction on a new growth path, which will be known as the 2050 National Transformation and will be branded as TN50. We believe one of the key strategies from TN50 is to accelerate the development of small and medium enterprises (SMEs) in Malaysia. For instance, a special fund of RM3bn by the Government-linked investment companies to invest in potential small and mid-cap companies. Tax and expenditure for 2017 Budget is still expansionary While generous measures were introduced for the people and business, the tax and expenditure programme of the Federal Government in Budget 2017 also involves striking the appropriate balance between fiscal consolidation and supporting the economy. However, total expenditure allocation of RM260.8bn is 3.4% higher than decline of 2.2% estimated expenditure for 2016, where operating expenditure is projected to increase by 3.7% to RM214.8bn in 2017, while development expenditure is expected to increase by 2.2% to RM46bn in As such, we believe the focus of sustaining economic growth in Budget 2017 (through handouts and stimulus measures) still takes slightly more precedence over fiscal deficit reduction. We believe this may be due to possible downside risk to global economic outlook on the Malaysian economy. As a result, the Budget 2017 will be expansionary on the economy. Fig 8: Federal Government finance RM bn (unless stated otherwise) Original Budget 2016 Budget 2016 Recalibrated Budget A 2016F 2016R 2016E 2017F Brent (US$/bbl) Revenue Operating expenditure Current balance Gross development expenditure Loan recoveries Net development expenditure Overall balance % of GDP Source: MOF Economic Report 2016/2017 Page 5 of 10

6 E 2017F 24 October 2016 In our view, the projected improvement in budget fiscal deficit for 2017, from -3.1% of GDP in 2016 to -3.0% of GDP, can be achieved, but based on the assumption that revenue target is attainable. Government s revenue is projected to increase by 3.4% to RM219.7bn in 2017 (RM212.6bn estimated for 2016), with oil-related revenue likely to recover, due to a 25% increase in the petroleum income tax (based on the crude oil price assumption of US$45/barrel projected for 2017 as against US$40/barrel in 2016). However, dividend income from Petronas will be lowered to RM13bn in 2017 from RM16bn in Fig 9: Oil-related revenue breakdown RM bn 2015A 2016FE 2017E Fig 10: Oil-related revenue RM bn Oil related revenue (RM bn) 80 % of total revenue % Source: MOF PITA Petronas dividend Petroleum royalties Other oil-related We believe there are some downside risks to the Government s projection of an improvement in budget deficit for 2017, but only if, in the event that the external environment deteriorates sharply. Revenue sources from direct taxes are vulnerable to external influences and can fluctuate in response to the performance of the world economic situation, which may lead to possible shortfall in tax revenue receipts, especially from direct taxes. However, with GST providing a more steady stream of revenue, as collection is less subject to business cycle fluctuations, this will provide better management of government finances. The GST collection has reached nearly RM30bn as at mid-october 2016, which is only RM8.5bn short of the full year target of RM38.5bn (RM27bn in 2016). GST collection is expected to increase further to RM40bn in Setting up of Collection Intelligence Arrangement (CIA) To further enhance long-term fiscal sustainability, after incorporating the Medium-term fiscal framework (MTFF) into fiscal policy in 2016, the Government has proposed to establish an agency called the Collection Intelligence Arrangement (CIA) under the Ministry of Finance in Budget It involves collaboration between Inland Revenue Board (IRB), Royal Malaysian Customs Department (RMCD) and Companies Commission of Malaysia (SSM) in sharing of data and information, which improve on efficiency in tax collection, tax audit and tax compliance, where the move may encourage companies to be more transparent. Going forward, with the establishments of both MTFF and CIA, we believe the Government will continue with strategies and implement further plans to try and achieve the average medium-term fiscal deficit of 2.7% of GDP over periods, as well as the target set in the 11th Malaysia Plan (11MP) of achieving 0.6% of GDP or RM9.9bn by We believe the Government will remain committed in fiscal consolidation programme, where the lack of details on plans to optimise its operating expenditure in Budget 2017 will be addressed going forward. Page 6 of 10

7 So far, Government is looking into micro-managing their expenditure, with non-fiscal measures and reforms that government is looking at to alleviate pressures on government expenditure. Some of the reforms under consideration may include reducing cost and redundancies by optimising ICT systems, government-owned facilities and premises for training and events. Fig 11: Federal Government operating expenditure RM bn Change (%) Share (% of total) Emolument Retirement charges Debt service charges Domestic External Grants & transfers to state govt Constitutional grants Other grants/transfers Supplies and services Asset acquisition Subsidies Refunds and write-offs Grants to statutory bodies Others Total Operating Expenditure % of GDP Revised estimate 2 Budget estimate, excluding 2017 Budget measures Source: MOF Economic Report 2016/2017 However, we remain slightly concerned about the higher government spending as the sharp increase in operating expenditure was to meet higher emoluments, retirement charges as well as grants to statutory bodies, as well as less aggressive reduction in supplies and services and subsidies as opposed to the earlier planned. We believe it is important for the authority to maintain its operating expenditure as planned for 2017, apart from enhancing government revenue. For the latest economic assessment on outlook, please refer to our separate report covering the MOF Economic Report 2016/2017. Fig 12: Ministry of Finance s GDP forecast Change (%) Share (% of GDP) %ppt contribution to GDP Nominal GDP Real GDP Real GDP by aggregate demand Private Expenditure Consumption Investment Public Expenditure Consumption Investment Domestic Demand Change in Stocks Net External Demand Exports Imports Real GDP by Sector Agriculture Mining Manufacturing Construction Services (+) Import duties Revised estimate 2 Budget estimate 3 Exclude change in stocks 4 Goods and non-factor services Source: MOF Economic Report 2016/2017 & Budget speech Page 7 of 10

8 Appendix I Individual tax reliefs Individual tax relief types (RM) YA2012 YA2013 YA2014 YA2015 YA2016 YA2017 Self and dependent 9,000 9,000 9,000 9,000 9,000 9,000 Medical expenses for parents 5,000 5,000 5,000 5,000 5,000 5,000 Basic supporting equipment 5,000 5,000 5,000 6,000 6,000 6,000 Disabled individual 6,000 6,000 6,000 6,000 6,000 6,000 Education fees (individual) 5,000 5,000 5,000 5,000 7,000 7,000 Medical expenses for serious diseases 5,000 5,000 5,000 6,000 6,000 6,000 Complete medical examination Purchase of sport equipment for sport activities Purchase of books, journals, magazines and publications 1,000 1,000 1,000 1,000 1,000 - Purchase of personal computer (once in every 3 years) 3,000 3,000 3,000 3,000 3,000 - Lifestyle relief (sports equipment for sport activities; books, journals, magazines and publications, printed daily newspapers; purchase of computer, tablet or smartphone; internet ,500 subscription; gymnasium membership fee) Net saving in SSPN's scheme (with effect from year assessment 2012 until year assessment 2017) 6,000 6,000 6,000 6,000 6,000 6,000 Subscription fees for broadband registered in the name of the individual (with effect from year of assessment ) Interest expended to finance purchase of residential property. Relief of up to RM10,000 a year for three consecutive years 10,000 10,000 10,000 10,000 10,000 10,000 from the first year the interest is paid.* Husband/Wife/Alimony Payments 3,000 3,000 3,000 3,000 4,000 4,000 Disabled Wife/Husband 3,500 3,500 3,500 3,500 3,500 3,500 Ordinary Child relief (below 18 years of age) 1,000 1,000 1,000 1,000 2,000 2,000 Each unmarried child of 18 years and above who is receiving full-time education ("A-Level", certificate, matriculation or 1,000 1,000 1,000 1,000 1,000 1,000 preparatory courses). Each unmarried child studying at tertiary level 4,000 6,000 6,000 6,000 8,000 8,000 Disabled child 5,000 5,000 5,000 6,000 6,000 6,000 Disabled child aged 18 years old and above, not married and pursuing diplomas or above qualification in bachelor degree or above outside Malaysia in program and in Higher 4,000 6,000 6,000 6,000 8,000 8,000 Education Institute that is accredited by related Government authorities Life insurance dan EPF 6,000 6,000 6,000 6,000 6,000 6,000 Premium on new annuity scheme or additional premium paid on existing annuity scheme commencing payment from 01/01/2010 (amount exceeding RM1,000 can be claimed together with life 1,000 1,000 1,000 1,000 1,000 1,000 insurance premium) - deleted from year assessment 2012 until year assessment 2021 Deferred Annuity and Private Retirement Scheme (PRS) - with effect from year assessment 2012 until year assessment ,000 3,000 3,000 3,000 3,000 3,000 Insurance premium for education or medical benefit 3,000 3,000 3,000 3,000 3,000 3,000 Tax relief on employees' contribution to social security protection scheme Source: Inland Revenue Board, Budget 2017, Affin Hwang computation Page 8 of 10

9 Focus Charts Chart 1: GDP growth target by MOF Chart 2: Private consumption VS BR1M allocation Chart 3: Private investment vs DE allocation Chart 4: Subsidy rationalisation Chart 5: House price index indicators Chart 6: Petronas dividend vs Brent price Source: All data for charts sourced from CEIC, DoS, MOF Page 9 of 10

10 Equity Rating Structure and Definitions BUY Total return is expected to exceed +10% over a 12-month period HOLD Total return is expected to be between -5% and +10% over a 12-month period SELL Total return is expected to be below -5% over a 12-month period NOT RATED Affin Hwang Investment Bank Berhad does not provide research coverage or rating for this company. Report is intended as information only and not as a recommendation The total expected return is defined as the percentage upside/downside to our target price plus the net dividend yield over the next 12 months. OVERWEIGHT Industry, as defined by the analyst s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months NEUTRAL Industry, as defined by the analyst s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months UNDERWEIGHT Industry, as defined by the analyst s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months This report is intended for information purposes only and has been prepared by Affin Hwang Investment Bank Berhad (14389-U) (formerly known as HwangDBS Investment Bank Berhad) ( the Company ) based on sources believed to be reliable. However, such sources have not been independently verified by the Company, and as such the Company does not give any guarantee, representation or warranty (express or implied) as to the adequacy, accuracy, reliability or completeness of the information and/or opinion provided or rendered in this report. Facts, information, views and/or opinion presented in this report have not been reviewed by, may not reflect information known to, and may present a differing view expressed by other business units within the Company, including investment banking personnel. Reports issued by the Company, are prepared in accordance with the Company s policies for managing conflicts of interest arising as a result of publication and distribution of investment research reports. Under no circumstances shall the Company, its associates and/or any person related to it be liable in any manner whatsoever for any consequences (including but are not limited to any direct, indirect or consequential losses, loss of profit and damages) arising from the use of or reliance on the information and/or opinion provided or rendered in this report. Any opinions or estimates in this report are that of the Company, as of this date and subject to change without prior notice. Under no circumstances shall this report be construed as an offer to sell or a solicitation of an offer to buy any securities. The Company and/or any of its directors and/or employees may have an interest in the securities mentioned therein. The Company may also make investment decisions or take proprietary positions that are inconsistent with the recommendations or views in this report. Comments and recommendations stated here rely on the individual opinions of the ones providing these comments and recommendations. These opinions may not fit to your financial status, risk and return preferences and hence an independent evaluation is essential. Investors are advised to independently evaluate particular investments and strategies and to seek independent financial, legal and other advice on the information and/or opinion contained in this report before investing or participating in any of the securities or investment strategies or transactions discussed in this report. Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data. The Company s research, or any portion thereof may not be reprinted, sold or redistributed without the consent of the Company. The Company, is a participant of the Capital Market Development Fund-Bursa Research Scheme, and will receive compensation for the participation. This report is printed and published by: Affin Hwang Investment Bank Berhad (14389-U) (formerly known as HwangDBS Investment Bank Berhad) A Participating Organisation of Bursa Malaysia Securities Bhd Chulan Tower Branch, 3rd Floor, Chulan Tower, No 3, Jalan Conlay, Kuala Lumpur. research@affinhwang.com Tel : Fax : Page 10 of 10