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Oleh/By : DATO SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : THE DEWAN RAKYAT
Tarikh/Date : 19-10-2001
Tajuk/Title : THE 2002 BUDGET SPEECH
Versi : ENGLISH
Penyampai : PM
I beg to move the Bill intituled "An Act to supply a
sum from the Consolidated Fund for the service of the
year 2002 and to appropriate that sum for the service
of that year" be read a second time.
I. INTRODUCTION
1. We are grateful to the Almighty for enabling us to
assemble here today for the tabling of the 2002 Budget.
This Budget is crucial for us as we need to address the
greater challenges arising from an increasingly
difficult external environment.
2. World economic growth slowed down since the
beginning of the year, following weak economic
performance in the United States and Japan. The
horrendous attack on the United States further
aggravated global economic conditions with prospects of
an early recovery becoming more uncertain. The attack
was inhuman with thousands of lives being lost. The
whole world was shocked and the effects are indeed far
reaching. It not only weakened economic performance,
but also threatened global political stability and
security. Malaysia opposes violence. At the same time,
we are also against a war to combat violence. War is
not a solution as many more lives will be lost and more
resources destroyed. It will also cause further
sufferings. It will not eradicate terrorism, nor curb
terrorist activities. Those involved are not Afghans
and not many are in Afghanistan. These terrorists
reside in many countries and can launch their attacks
from any location. Malaysia has fought terrorism for 42
years. While our military assaults were only confined
to terrorists, we also undertook psychological warfare
to win the hearts and minds of the people to neutralise
their support, while eradicating the root cause of
terrorism.
3. Military assaults alone will not solve the
problem. War will only worsen the already weak world
economy. Already we have to face war risks. Links with
our trading partners may be disrupted. Costs of
insurance on shipping, freight and air transportation
have escalated. Global demand for products will
continue to decline while costs of trading will
increase.
4. The aftermath of the September 11 incident
witnessed a crash in major equity markets, some
unprecedented. Equity markets in the United States
were the worst affected with the Dow Jones declining by
double digits, to the lowest level in recent years. A
day after the attack, stock markets throughout the
world experienced heavy selling pressure. The Dax
Index fell 8.5 per cent, marking its biggest single-day
decline. The FTSE Index shed 5.7 per cent, also
reflecting the largest single-day fall since 1987. The
Nikkei Index which was already at its lowest level in
17 years, declined further by 6.6 per cent to a new
low. Similarly, other stock market indices, like the
Hang Seng and the STI also slumped. Stock markets in
Taiwan, Thailand and Kuala Lumpur which reopened on 13
September, experienced similar declines.
5. Costs of finance and insurance will surge.
Investor sentiment and consumer confidence
deteriorated. There was flight to quality with
investors shifting their funds to other financial
centres. The United States is no longer a `safe haven'.
Amidst this environment, the prospects for an early
recovery are increasingly dim. Industrial economies may
be faced with the possibility of recession. With the
possibility of a prolonged attack on Afghanistan,
global economic prospects will undoubtedly deteriorate
further.
6. As an immediate response to prevent the economy
from deteriorating, the United States Administration
injected liquidity into the financial system and
reduced interest rate to 2.5 per cent. This
represented the ninth interest rate cut from the level
of 6.5 per cent early this year. The United States
Congress approved a 40 billion dollar fiscal allocation
for reconstruction, security and relief efforts. An
additional 75 billion dollar fiscal stimulus package
was also announced. The United States Administration
further approved a bail-out package of 15 billion
dollars to support their airlines industry. In this
regard, when Malaysia restructured its companies,
including our national airlines, international
financial institutions, in particular the IMF and World
Bank accused us of bailing out cronies. We were accused
of practising nepotism and lacking in transparency in
corporate governance. It is obvious that in critical
situations, other countries also adopt the very
measures that we undertook which were criticised. Apart
from bailing out, other measures taken by Malaysia
which were once condemned by the foreign media are also
being implemented by these countries. The foreign
media did not condemn these actions. The foreign media
themselves is now not that independent anymore. The
safety of the majority is more important than total
freedom.
7. As an open economy with trade accounting for more
than 200 per cent of GDP, the Malaysian economy has
been affected by the growing difficulties in the
external sector. The economy has just recovered from
the financial crisis of 1997-1998. However, in the
light of the recent developments, GDP growth for 2001
which had been revised from 7 per cent to between 5 to
6 per cent in March 2001, has been further revised
downwards to between 1 to 2 per cent. The Government
responded immediately by putting in place measures to
prevent further deterioration in the economy. As we
cannot be overly dependent on external trade, growth
must be led by domestic economic activities as well as
by exploring new markets.
8. In line with the domestic-led growth policy, the
Government announced an additional pre-emptive fiscal
package of 4.3 billion ringgit on 25 September 2001.
This is an addition to the earlier pre-emptive package
of 3 billion ringgit which was announced in March. The
package is aimed at stimulating domestic economic
activities as well as alleviating the negative impact
on the low-income group and the disadvantaged. It is
also aimed at promoting business activities, increasing
income opportunities for small entrepreneurs and
assisting retail businesses. In this regard, specific
small rural projects have been offered to class F
Bumiputera and non-Bumiputera contractors. The package
will provide skill training for retrenched workers and
unemployed graduates.
9. The fiscal stimulus package will not have its
intended impact of generating higher growth, if the
programmes and projects under the package are not
implemented immediately. The Government has,
therefore, reviewed the procedures, rules and
guidelines on the implementation of development
projects and payments to contractors.
10. To expedite the implementation of projects,
ministries and agencies have been empowered with
greater delegated authority. Tender Boards at
ministries have been given the authority to approve
tenders up to 50 million ringgit for works procurement
and 30 million ringgit for supplies and services. Their
Tender Boards can also approve restricted tenders up to
5 million ringgit without Treasury approval. As for
statutory bodies, the approval limit for tenders for
all supplies, services and works has been raised to 100
million ringgit and up to 10 million ringgit for
restricted tenders. This delegation should not result
in abuses of authority, but should be accorded greater
responsibility.
11. A task force has been established in the Ministry
of Finance to monitor the progress as well as identify
and address implementation problems to ensure that all
measures under the fiscal stimulus are implemented
immediately. A Flying Squad has also been established
to ensure that the implementation of public and
privatised projects is carried out as scheduled. In
order to expedite payment, all Ministries and agencies
are required to pay 50 per cent upon submission of
claims. Payment of claims must be settled within 30
days from the date of submission. The Administration,
including Ministers will monitor financial management
without getting involved in decision making. Aggrieved
parties will have recourse to the Ministers. On the
other hand, Ministers must exercise care and caution in
their supervisory functions to avoid accusations of
favouritism.
12. Monetary policy will continue to be accommodative
to complement fiscal stimulus. On 20 September, Bank
Negara Malaysia reduced the 3-month intervention rate
by 50 basis points to 5 per cent, aimed at stimulating
business sentiment and consumer confidence. This
reduction represents the first cut in more than two
years and is in tandem with actions taken by other
central banks in several major industrialised
countries. Following the reduction, the base lending
rate of commercial banks and finance companies declined
to reach historical lows of 6.4 per cent and 7.45 per
cent, respectively.
II. ECONOMIC CHALLENGES
13. We have proven our ability to successfully manage
our economy under all circumstances, through boom and
bust. Our ability and success should provide the
confidence and should drive us to mobilise efforts and
respond immediately to challenges arising from the
instability in the external environment. In moving
forward, we have to intensify efforts to overcome
obstacles that could derail our goal of achieving
developed nation status.
Reducing Dependence on Electronics Exports
14. Malaysia is the world's 17th largest trading
nation. Electronics is the nation's main export,
contributing nearly half the export earnings of the
manufacturing sector and 41 per cent of the nation's
export earnings. However, more than 70 per cent of
electronics components comprise imported intermediate
goods. As such, the nation has not been able to
maximise benefits from higher value-added activities of
exports. Gross exports is expected to decline by 10.6
per cent, following the significant contraction in
global demand for electronics products this year. We
must, therefore, diversify the sources of exports as
well as explore new markets. We cannot be overly
dependent on a particular export item, especially one
with a high import content. However, we should not
reduce the exports of electronics. Instead, we should
endeavour to increase the export of other items in
order to reduce our dependence on exports of
electronics.
Realising the Full Potential of the Services Sector
15. The services sector is one of the main
contributors to growth, accounting for 55 per cent of
GDP in 2001. Nevertheless, there is scope for further
improvement. The nation has modern ports and airports
with the potential for becoming the hubs for cargo
movement as well as attracting domestic and
international integrated express operators. Johor
ports must seize the opportunities from their strategic
location and proximity to Singapore to provide world-
class port services. Meanwhile, the Senai airport
should become the air cargo hub in the region. Given
the potential of Johor ports and Senai airport, a more
efficient and effective integrated transportation
system must be immediately developed to link air, land
and marine transportation network in the south of the
Peninsular.
16. The performance of the tourism sector has been
excellent. Currently, foreign tourist arrivals have
recorded the highest level at more than 1 million a
month. Nevertheless, concerns on the safety of air
travel, particularly in the west in the wake of the
September 11 attack, will affect tourist arrivals from
these countries. Thus, efforts must be intensified to
attract tourists from Asia, in particular from
countries in the Persian Gulf and West Asia as well as
India, China and ASEAN, in addition to further
promoting domestic tourism. The transport, tourism and
hotel industries should collaborate and participate in
the Government's tourism promotional efforts.
Enhancing the Performance of the Agriculture Sector
17. The nation is endowed with fertile land which can
be utilised for the cultivation of crops and rearing of
livestock. However, the growth of the agriculture
sector has been concentrated only on a few commodities,
such as rubber and oil palm. These commodities are
subject to price fluctuations, thus affecting incomes,
in particular, of the smallholders. We are also overly
reliant on food imports, which exceeded 11 billion
ringgit last year. It is, therefore, vital to
diversify the agriculture sector to produce higher
value-added products. Emphasis has not been given to
fresh and salt water fish farming as well as rearing of
cattle, goats and other livestock, such as ostrich,
deer and ducks. Mixed farming has as yet not been
promoted. These efforts have not been undertaken on a
large scale although our strength lies in managing
large agricultural estates. Smallholders have not yet
merged themselves through cooperatives or companies for
this purpose.
Increasing the Dynamism of the Private Sector
18. The private sector has been adversely affected by
the global economic slowdown. Its contribution to GDP
has declined significantly to 12.8 per cent compared to
32 per cent prior to the financial crisis. Since 1997,
economic growth has been driven mainly by public sector
investment. However, in the long term, economic growth
cannot continue to rely solely on public sector
investment through fiscal stimulus. Neither can we
depend on the inflows of foreign direct investment, due
to its volatility and greater competition from other
countries, such as China and Latin America. The private
sector has not identified its comparative advantage in
areas where it can increase production.
Improving Competitiveness
19. In the era of globalisation and liberalisation,
the nation faces greater competition from producers in
international markets, particularly with the emergence
of developing countries, such as China. Several
reports have indicated that the nation's
competitiveness has declined in the medium term. In
other words, our productivity has not increased in line
with the increase in the cost of production. If this
trend is not checked, Malaysia will lose its share in
the international market. As a result, workers may lose
their jobs, wages will not increase and there will be
no additional new job opportunities.
III. BUDGET STRATEGY 2002
20. In the light of the increasingly more difficult
global economic outlook and greater challenges
encountered as well as the need to address domestic
issues, 2002 Budget will focus on the following
strategies:
i. strengthening the nation's economic growth through
increased domestic expenditure, enhancing the role of
the private sector and increasing competitiveness;
ii. diversifying sources of growth through trade and
domestic industrial activities without reducing the role
of reign direct investment as well as ensuring the
continued expansion of the nation's exports; and
iii. ensuring equitable distribution of wealth between
urban and rural areas, between high and low income groups
and between the more developed and less developed states.
First Strategy: Strengthening the Nation's Economic
Growth
Increasing Domestic Expenditure
21. The more conventional way to revitalise the
economy is through increasing public expenditure. For
2001, we had used this approach with a fiscal stimulus
of 3 billion ringgit in March. With the worsening of
the global and US economies, following the September 11
attacks, an additional expenditure of 4.3 billion
ringgit was approved.
22. Money will only generate wealth if it changes
hands. Suppliers of goods and services will earn
profits from each transaction, while consumers will
through the value of goods, realise the value of their
money. The higher the frequency with which money
changes hands, the greater is its contribution to the
nation's growth and wealth creation.
23. Expenditure is essential in stimulating and
increasing economic activities. The additional
expenditure by the Government in March and after the
September 11 incident will enhance the velocity of
transactions of goods and services. Higher Government
expenditure will enable the implementation of more
projects, increase the sales of building materials
while contractors and sub-contractors will receive
payments and workers, wages. These payments will spur
consumption of goods and services. It is clear that the
stimulus package will benefit all, in terms of
additional income. The Government will then benefit in
terms of higher collection of tax revenue from greater
business activities.
24. The Government will adopt this strategy of fiscal
expansion in 2002 Budget, through higher Operating
Expenditure and Development Expenditure. The fiscal
stimulus will be implemented as follows:
Continuing the Fiscal Stimulus
25. I propose an amount of 100.52 billion ringgit to
be allocated for the 2002 Budget, an increase of 10.4
per cent compared to the original 2001 allocation. Of
this, an amount of 66.98 billion ringgit is for
Operating Expenditure and 33.54 billion ringgit is for
Development Expenditure. Taking into account the
revenue estimates of 73.4 billion ringgit, the overall
Federal Government account is estimated to record a
deficit of 5 per cent of GDP, amounting to 18.6 billion
ringgit in 2002. The deficit is lower than the 22.4
billion ringgit or 6.5 per cent in 2001.
26. An amount of 33.33 billion ringgit from the
Operating Expenditure is allocated for Grants and Fixed
Payment obligations. This includes debt-service
charges, payment of pensions and gratuities and
contributions to statutory funds. An amount of 17.58
billion ringgit is for Emoluments, 12.07 billion
ringgit for Services and Supplies, 1.53 billion ringgit
for purchase of office equipment and facilities and
2.47 billion ringgit for other expenditure, including
tax refunds.
27. Of the proposed total Development Expenditure, an
amount of 13.11 billion ringgit or 39.1 per cent is
allocated to the economic sector, including rural
development, agriculture, infrastructure, industrial,
rural electricity and water supply projects. An amount
of 12.21 billion ringgit or 36.4 per cent is allocated
to the social sector, that is, for education and
training, health, welfare and community development as
well as projects for youth and sports. In addition,
3.31 billion ringgit or 9.9 per cent is allocated for
the security sector and 2.91 billion ringgit or 8.7 per
cent allocated for the general administration sector.
The balance of 2 billion ringgit or 5.9 per cent is for
Contingencies Reserve.
Encouraging Consumption
28. The nation's income has been affected following
the global economic slowdown and the negative wealth
effect from the decline in share prices, thus affecting
the purchasing power of the rakyat. To increase the
disposable income of the rakyat, I propose that the
individual income tax rate be reduced between 1 and 2
percentage points for all income bands. The maximum
individual income tax rate which is currently at 29 per
cent is now reduced to 28 per cent, thus harmonising
with the corporate tax rate. In addition, with a view
to rewarding work efforts, the chargeable income
subject to the maximum tax rate be increased from more
than 150 thousand ringgit to more than 250 thousand
ringgit. In line with this reduction, the income tax
rate for cooperatives be reduced by 1 percentage point
across the board while the income tax rate for non-
residents be reduced from 29 per cent to 28 per cent.
These measures will result in a revenue loss to the
Government, amounting to 873 million ringgit. However,
this amount will be available for consumers to spend,
thereby stimulating economic activities and
contributing to GDP growth.
Further Stimulating the Role of the Private Sector
29. The private sector has to resume its role as the
main catalyst of economic growth. In this regard, the
Government will continue to offer special incentive
packages as announced in the 2000 Budget to attract
quality investments. To date, the Government has
approved 20 projects with investments totalling 33
billion ringgit under the pre-package incentives,
mainly for petrochemicals and electronics. In addition
to attracting new investors, existing investors must
also be encouraged to continue to reinvest in expansion
projects, modernisation, automation and
diversification. Therefore, I propose that the period
for Reinvestment Allowance be extended from 5 to 15
years.
30. Efforts to attract investments are increasingly
becoming challenging. In this respect, the Government
has received many proposals to reduce corporate tax.
However, the Government does not intend to reduce the
corporate tax, since the rate is still competitive
compared to many ASEAN, Asian and other developed
countries. Malaysia does not impose tax on dividends,
unlike several other countries, including Thailand,
Taiwan and Japan. Furthermore, we have already provided
various tax incentives to foreign and domestic
investors. If all these are taken into consideration,
our effective tax rate is lower.
31. Small and medium companies, which are resilient
and competitive, are the backbone for supporting growth
of larger industries. In order to compete in the
international market, small and medium companies must
participate in the Global Supply Chain Management
Network for on-line and real-time procurement,
production and logistics management. To use this
network, small and medium companies need to utilise
internet-based common order code such as RosettaNet, to
communicate directly with global suppliers. A grant of
5 million ringgit is provided for the development of
RosettaNet. In addition, I propose that the
expenditure incurred by multinational companies in
pioneering this programme for the benefit of the small
and medium-scale companies be given deduction for
purposes of income tax.
32. To increase the participation of Bumiputera
community in industrial and commercial activities,
particularly in the retail sector, the Government had
launched the Projek Usahawan Bumiputera Dalam Bidang
Peruncitan or PROSPER. This scheme is aimed at
assisting small Bumiputera entreprenuers who lack
capital, face difficulties in securing suitable
premises or locations and experience management
problems. Up to 8 October 2001, PROSPER has
successfully trained 2,997 Bumiputera entrepreneurs in
the retail sector. A total of 82 business proposals
has been approved, of which 12 are from ex-army
personnel. For 2002, an additional 250 Bumiputera
entrepreneurs are expected to be trained. PROSPER is
not a get-rich scheme but a serious scheme for long-
term business undertakings that will grow if managed
properly.
Increasing Competitiveness
33. In the light of greater challenges of a borderless
world and with our commitment towards the
implementation of AFTA, the nation needs to increase
its competitiveness and productivity to become a global
player in the international marketplace. As a measure
to reduce the cost of doing business and increase
competitiveness, I propose that Industrial Building
Allowance granted to approved buildings including
hotels be reviewed as follows:
i. the annual allowance be increased from 2 per cent
to 3 per cent. As a result, companies can claim
depreciation within a shorter time frame, that is,
from 45 years to 30 years;
ii. initial allowance of 10 per cent currently granted
for capital expenditure incurred in the construction of
buildings be extended to capital expenditure incurred in
the acquisition of buildings; and
iii. Industrial Building Allowance be given to all hotels.
34. As a further measure to reduce cost and increase
competitiveness, I propose that import duties on 55
products which have been long protected be reduced from
between 20 per cent and 105 per cent to between 10 per
cent and 50 per cent. Among the products involved are
aerated beverages, woven fabric, lace and blankets. I
further propose that import duties on 171 products
inclusive of intermediate goods such as multimedia
projectors, telephone answering machines, furniture
components and photographic papers be reduced from
between 5 per cent and 35 per cent to between 0 per
cent and 25 per cent. In addition, as a measure to
reduce the cost of doing business for shipping
companies in Malaysia, I propose that income received
by non-residents from renting containers to shipping
companies in Malaysia be exempted from income tax.
35. I further propose that the annual deduction on
expenses incurred in acquiring proprietary rights such
as patents, industrial designs and trade marks be
increased from 10 per cent to 20 per cent for a period
of 5 years. It is hoped that this measure will
accelerate the acquisition of the state-of-the-art
technology.
36. To enhance productivity and competitiveness,
employers must undertake to train and upgrade the
skills of their workers. In this regard, the Government
has set up the Human Resource Development Fund as well
as provided tax incentives for training in technical
and vocational fields. In addition, practical training
schemes need to be encouraged as one of the avenues to
increase the supply of skilled and trained manpower.
Therefore, I propose that expenditure incurred by any
person in providing practical training to individuals
who are not their employees be given deduction for
purposes of income tax.
37. The payment of bonus is an incentive to workers to
increase productivity. Currently, tax deduction on
bonus payments is limited to two months salary. I
propose that the restriction on bonus be abolished. It
is hoped that this measure will provide an opportunity
to employers to offer remuneration which is
commensurate with the their workers' productivity.
38. The Government hopes that trade associations will
continue to play an important role, taking pro-active
measures to further develop their members' activities.
To assist these associations to strengthen their
financial position, I propose that statutory income
from subscription fee be exempted from income tax.
Development of ICT and Venture Capital
39. The national ICT agenda aims to create a
knowledgeable, informed and ICT-savvy society. The
Government has allocated an amount of 112.7 million
ringgit to implement the Electronic Government Flagship
Project, 72.3 million ringgit for Smart Schools, 20
million ringgit for Telemedicine, 86.3 million ringgit
for Smart Card and 9.5 million ringgit for Integrated
Application. Apart from this, an amount of 487.67
million ringgit is allocated to increase the
computerisation programme in ministries and departments
and 205.5 million ringgit for computerisation of
schools.
40. To enhance the usage of multi-purpose smart cards,
financial institutions need to provide the appropriate
infrastructure including related equipment, such as
loading devices and card readers. As its
implementation would require large capital outlays, I
propose that smart cards and its related equipment be
given sales tax exemption.
41. To further encourage the use of ICT in trade as
well as establish Malaysia as an attractive business
location for international trade, I propose that the
tax on income derived from offshore trading through
websites in Malaysia be reduced from 28 per cent to 10
per cent for a period of 5 years. I further propose
that the cost incurred in the development of websites
for business be granted an annual deduction of 20 per
cent for a period of 5 years.
42. Following the announcement of the establishment of
the 500 million ringgit Venture Capital Fund, a
Government-owned company, Malaysia Venture Capital
Management Berhad (MAVCAP) was set up. An amount of 100
million ringgit from the Fund will be outsourced to
four local venture capital companies, while the balance
of 400 million ringgit will be direct investments in
venture capital companies. To date, MAVCAP has received
104 business proposals from 10 countries, including the
United States, Korea, Hong Kong SAR and China, with
financing requirements of 1 billion ringgit. To further
augment the venture capital fund, the Government of
Japan has agreed in principle to provide a loan to
MAVCAP, amounting to 1.9 billion ringgit, especially
for the financing of debt ventures.
43. Another Government-owned company was established,
namely Kumpulan Modal Perdana Sdn. Bhd. to manage the
Venture Capital Fund for Technology Acquisition,
amounting to 190 million ringgit. Of this, 114 million
ringgit will be invested in the American Pacific
Venture Capital Fund in the Silicon Valley and Venture
Capital Joint Venture Investment in Malaysia, with the
balance of 76 million ringgit for the implementation of
the Advanced Microchip Design and Training Centre.
Capital Market
44. The Kuala Lumpur Stock Exchange (KLSE) has
experienced significant fluctuations arising from
developments in the global stock markets. As part of
the efforts to ensure stability in the stock market, as
highlighted in the Capital Market Masterplan, the
Government has agreed to implement the circuit breaker
mechanism in the stock exchange, as practised in the
developed countries. This mechanism has the capacity
to halt trading activities temporarily when large
declines are experienced during a trading day. These
halts are based on pre-determined trigger levels. The
mechanism will provide investors breathing space before
resuming stock market trading activities. It is also
aimed at maintaining investor and market confidence,
especially in an uncertain environment.
45. To facilitate corporate restructuring, the
Securities Commission has relaxed the conditions for
restructuring distressed public listed companies.
These measures include enlarging the pool of assets by
allowing quality investment properties with stable
income to be injected into these companies. In
addition, the establishment of Real Estate Investment
Trusts will facilitate restructuring efforts. To
improve the financial position of distressed companies,
the requirement of share buy-back is further relaxed.
Meanwhile, listed companies with unsatisfactory
financial position or with issued capital below the
minimum threshold, are given an extension up to
December 2002 to comply with the listing requirements
of the KLSE.
Second Strategy: Diversifying Sources of Growth
46. To further strengthen the nation's economic
fundamentals, efforts have been taken to diversify
sources of growth, especially resource-based
activities. Given that technology, skills and
innovation are the main catalysts for future growth, we
need to accelerate the shift towards a K-based economy.
Manufacturing Sector
47. For the manufacturing sector, we have to further
develop domestic-resource based industries, mainly
furniture, palm oil-based oleochemicals and rubber
products as well as household electrical appliances
which have high demand potential, especially from West
Asia and Africa. Meanwhile, the steel and aluminum
fabrication industry as well as production of machinery
have to be further accelerated, particularly in meeting
the demands of the local industry, and exports such as
cranes, oil refinery plants, boilers and other
fractionation towers for chemical and petrochemical
plants.
48. Intermediate and capital goods comprise the
largest component in the nation's imports. Such
dependence must be reduced. To accelerate import
substitution programme, I propose that the income tax
exemption available to companies involved in the
production of machine tools, plastic injection
machines, material handling equipment, robotic and
factory automation equipment as well as parts and
components be increased, that is, in respect of Pioneer
Status from 70 per cent to 100 per cent and Investment
Tax Allowance from 60 per cent to 100 per cent. For
companies which manufacture machinery and other
equipment such as fabricated cranes, the value-added
criteria for the purpose of granting the 70 per cent
Pioneer Status or 60 per cent Investment Tax Allowance
be reduced from 30 per cent to 20 per cent.
49. Currently, domestic advertising costs for the
promotion of Malaysian brands registered in the country
are given double deduction for purposes of income tax.
As a continuous effort to introduce and promote local
brands in international markets, I propose that the
advertising cost for Malaysian brand names registered
overseas and professional fees paid to Malaysian brand
management companies be given double deduction for
purposes of income tax.
Agriculture Sector
50. The growth of the agriculture sector is largely
dependent on the output of commodities. There are many
new areas that could be developed, especially food and
resource-based products such as rubber and timber. In
the food sub-sector, including the production of meat,
such as ostrich and deer, vegetables and fruits,
aquaculture, fresh and salt water fish, prawns and
oysters as well as ornamental fish and planting of
flowers could be encouraged. Similarly, traditional
herbal products have high demand potential. Efforts to
expand the use of rubber-based products, including
vulcanised latex and timber products should also be
increased. Food products will also provide the
stimulus to the food processing industry. We have the
expertise and credibility to develop halal food which
has the potential to penetrate international markets.
51. Various tax incentives have been provided to
promote the agriculture sector. In 2001 Budget, tax
deduction equivalent to total investment or group-
relief is given to companies that invest in
subsidiaries involved in food production. In addition,
companies undertaking food production activities are
also given 100 per cent income tax exemption on
statutory income for a period of 10 years. However,
this incentive is only provided for new companies. To
strengthen the agriculture sector's contribution to
growth, I propose that reinvestment undertaken by
existing companies be granted 100 per cent income tax
exemption against the statutory income for a period of
5 years.
52. The Government has provided tax incentives in the
form of 100 per cent allowance on capital expenditure
to encourage food production on a large scale for
export and import substitution purposes. This
incentive is provided for prawn farming, floriculture
and the planting of approved fruits. I propose that
this incentive be extended to other agricultural
projects such as vegetable and herb farming, breeding
of fish including ornamental fish, cockles and oysters.
53. The poultry industry will continue to be the main
component of the livestock sub-sector. While the nation
has reached self-sufficiency in the supply of poultry,
there is scope for further expansion in the east coast
states as well as Sabah and Sarawak. To ensure self-
sufficiency in poultry, I propose that the rearing of
chicken and ducks in the Eastern Corridor of Peninsular
Malaysia, Sabah and Sarawak be granted Pioneer Status
with income tax exemption of 85 per cent or Investment
Tax Allowance of 80 per cent for a period of 5 years.
54. The nation is a major producer of rubber, timber
and oil palm. We must further exploit downstream
resource-based activities such as vulcanised rubber and
furniture which have the potential to contribute
towards economic growth. Downstream activities based
on rubber, rubber wood and oil palm waste can bring
tremendous benefits if fully exploited. To further
promote rubber, oil palm and timber-based industries as
well as encourage greater investment in these areas, I
propose that companies which reinvest in the production
of such resource-based products be granted income tax
exemption of 70 per cent or Investment Tax Allowance of
60 per cent for a period of 5 years.
Services Sector
55. In the services sector, the tourism and education
sub-sectors have the potential to be further developed
not only to generate domestic economic activities but
also increase foreign exchange earnings.
56. The Ministry of Culture, Arts and Tourism is
allocated with a sum of 613.9 million ringgit,
including 200 million ringgit for tourism promotion. To
attract more tourists, additional facilities for
recreational activities as well as tourism products
will be provided. To encourage yachting tourism, 20
potential locations have been identified for marina
development. For 2002, 5.4 million ringgit is allocated
for the construction of marinas in five locations, in
the west and east coasts of the Peninsular. In this
context, to encourage rental services of luxury yachts
and motorboats, I propose that rental income received
by the company be exempted from tax for a period of 5
years. In addition, to encourage recreational
activities of luxury motorcycles, I also propose that
import duty on luxury motorcycles be reduced from 120
per cent to 60 per cent. In line with this reduction, I
further propose that the import duty on other
motorcycles be reduced from between 80 per cent and 100
per cent to 60 per cent.
57. The Government has already granted income tax
exemption for foreign and local tourism business
activities up to assessment year 2001. As a continuous
effort to activate the tourism industry, I propose that
this exemption be extended for another 5 years. In
addition, to reduce the cost of car rentals to
tourists, I propose that the car rental operators be
granted excise duty exemption on the purchase of
national cars.
58. Apart from Government efforts, the private sector
must take the lead in promoting the tourism industry
more aggressively. In this respect, the Government
will increase the Tourism Fund from 200 million ringgit
to 400 million ringgit.
59. To further promote Malaysia as a centre of
excellence in education, the Government has provided
several incentives to develop private institutions of
higher learning. Therefore, in order to reduce the
cost of providing education facilities, I propose that:
i. all private institutions of higher learning and
private language institutions be granted exemptions
on import duty, excise duty and sales tax on
educational equipment, including laboratory fittings,
workshops studios and language labs; and
ii. royalty payments received by non-residents from
private institutions of higher learning for
franchised educational schemes be exempted from
income tax.
60. To encourage industries to invest in higher value-
added manufacturing activities such as logistics
services, integrated market support services and also
utility services centres, I propose the following tax
incentives:
i. income tax exemption of 70 per cent against
statutory income for a period of 5 years;
ii. income tax exemption of 85 per cent against
statutory income for a period of 5 years for projects
located in the Eastern Corridor of Peninsular Malaysia,
Sabah and Sarawak; and
iii. import duty and sales tax exemptions on equipment.
Enhancing Exports
61. To ensure that exports continue to expand, I
propose that the tax incentives for exports be further
enhanced as follows:
i. Malaysian trading companies that are approved
as international trading companies be granted income
tax exemption equivalent to 10 per cent of the
increased export value and the qualifying criteria
such as value of annual sales turnover be liberalised;
ii. income tax exemption for companies engaged in
the export of services be increased from 10 per cent
to 50 per cent of the increase in export value;
iii. income tax exemption be given to organisers of
international trade exhibitions which attract at
least 500 foreign visitors per year;
iv. double deduction for purposes of income tax be
extended to other expenses incurred in promoting
exports of goods and services, such as participation
in virtual trade shows and expenses incurred on
feasibility studies for participation in overseas
tenders; and
v. single deduction for purposes of income tax be
allowed on expenses incurred in registering patent
overseas and on hotel accommodation provided for
potential importers of Malaysian goods.
Third Strategy: Ensuring the Equitable Distribution
of Income between Urban and Rural Areas, between High
and Low Income Earners as well as between the More
Developed and Less Developed States
62. Currently, there exists a wide income gap between
the very rich and the very poor. We do not deny the
contribution of the rich towards national development
through their expenditure and investment. They create
job opportunities and their consumption generates
commercial activities, thereby providing income to
workers and profits to businesses.
63. For the lower income group, if their purchasing
power is increased, they too can equally contribute to
growth. While their income is low, their consumption
is big, given the significant number of those in the
low income group. As such, if their income is
increased, their higher consumption will contribute to
the nation's GDP. Thus, efforts must be taken to
increase their income.
64. Towards this end, the Government will provide
funds for training workers in modern agricultural
skills. With higher competence, they can command higher
wages. The Government will provide an amount of 10
million ringgit for such training programmes in
relevant training centres.
65. The income of class F contractors will be
increased through the implementation of more small
projects in rural areas. Project management training
will be provided for those who need training, to
increase their efficiency and enable them to be
upgraded to higher class contractors. Payment system
and loan facilities for those with good track record
will be established.
66. Retail business opportunities will be identified
in villages and newly developed townships. Training and
viable franchise businesses will be provided for those
interested and who have some capital, such as from
their retirement benefits or EPF. For those who are
already in business, assistance will be provided to
further expand their businesses. However, it must be
emphasised that commitment and diligence are important
values. Those who only want to get rich quickly must
not exploit these opportunities to satisfy their greed.
67. Mixed farming estates will be promoted. These
estates must be managed by professionals in the
appropriate fields. Trained estate workers will be
employed and paid wages commensurate with their
productivity and their efficiency in the use of
sophisticated agricultural technology. Modern
agricultural development will be encouraged in states
with abundant land and with per capita income lower
than the national average.
Rural Development
68. The 2002 Budget provides the biggest ever
allocation of 5.34 billion ringgit to further increase
the facilities and amenities in the rural areas. Among
others, this includes 1.58 billion ringgit for
agriculture, 378 million ringgit for land and regional
development as well as 392 million ringgit for village
and community development. The allocation also
includes the implementation of rural and village road
projects as well as the provision of water and
electricity supply.
69. By the end of the Eighth Malaysia Plan, the
Government will increase the coverage of potable water
supply to 99 per cent in Peninsular, 75 per cent in
Sabah and Sarawak while achieving full coverage for
electricity supply. For this purpose, a total of 185
million ringgit is allocated for rural water supply,
particularly for interior areas in Sabah and Sarawak.
A sum of 211 million ringgit will be provided for rural
electricity, including installation of street lights
along village roads in 16,207 villages.
70. Family health programmes in rural areas will
continue to be provided through the mid-wife, village
and health clinics. The services provided, such as the
teleprimary care programme, will encourage the
development of healthy families, including women in the
reproductive age group, child development as well as
health programmes for youths, the elderly and the
disadvantaged. In addition, an allocation of 202
million ringgit will be provided for a total of 383
health clinics while 8 million ringgit will be provided
for 13 Water Supply and Environmental Sanitation
Programme (BAKAS). BAKAS will include the construction
of a water supply and sanitation system as well as
waste and sewerage management.
71. Rural education is also given emphasis. An
allocation totalling 900 million ringgit is provided
for primary and secondary schools while 100 million
ringgit is allocated for 6 new matriculation colleges.
A sum of 205.5 million ringgit is allocated for the
construction of computer laboratories and facilities in
rural schools. In addition, a total of 7,800 houses
will be built with an allocation of 215 million ringgit
to ensure comfortable living conditions for teachers in
rural areas, which is part of the targetted 40,000
houses for teachers.
72. Education facilities in the rural areas of Sabah
and Sarawak will continue to be improved. For this
purpose, a sum of 180 million ringgit is allocated for
the construction and upgrading of teachers' houses as
well as the provision of potable water and electricity
supply in schools.
73. Efforts will be focussed on reducing the poverty
level of Orang Asli. This includes efforts to reduce
school dropouts through the Mind Development Programme
and strengthening the Pre-School Education Programme
through TASKA and TADIKA. Towards this end, a sum of
114.1 million ringgit is allocated for the development
of Orang Asli, involving 412 villages.
Caring Society
74. A sum of 136.5 million ringgit under the Operating
Expenditure and 57.3 million ringgit under the
Development Expenditure is provided for community
welfare programmes to benefit 52 welfare institutions.
This includes renovation and upgrading works in order
to improve their living conditions.
75. The Government will continue to focus on the needs
of the poor. Program Kesejahteraan Rakyat that was
formerly known as the Program Pembangunan Rakyat
Termiskin will give priority to states with the
highest number of poor, including Kelantan and
Terengganu. For this purpose, a sum of 204.5 million
ringgit is allocated under the Ministry of Rural
Development. These include programmes to motivate poor
families, augment their income, provide supplementary
food for the hard-core poor, eradicate urban poverty,
improve agriculture and economic activities as well as
for renovation of houses and community development.
76. FELDA will also provide price support assistance
for palm oil and rubber settlers faced with declining
commodity prices. Palm oil settlers will be given a sum
of 12 ringgit per metric tonne if palm oil prices are
below 900 ringgit. Rubber settlers on the other hand,
will be given a sum of 15 sen per kilogramme if rubber
prices are below 2 ringgit and 50 sen.
77. RISDA has allocated a sum of 3 million ringgit
annually to improve the income levels of hard-core
poor, provide better living conditions as well as
programmes aimed at improving their work attitude and
ethics to enable them to augment their income. In
addition, a maximum assistance of 250 ringgit a month
has been provided for each family based on the number
of dependents. A total of 667 families has benefitted
from this assistance, amounting to 2.5 million ringgit
for the period July 1999 to December 2000.
78. The Government will provide assistance for
students with hearing disabilities in institutions of
higher learning by providing free education, food and
lodging as well as a monthly allowance of 300 ringgit
beginning 1 January 2002. For this purpose, a sum of
403,000 ringgit has been allocated for 112 students in
2002. This assistance will reduce their financial
burden as well as of their families.
79. The Government is aware of the impact of the
reduction of interest rates by banking and financial
institutions on those who are dependent on returns from
savings, especially pensioners. To provide alternative
sources of income, Bank Negara Malaysia will issue the
Third Series of Bon Simpanan Malaysia, especially for
citizens above 55 years and welfare organisations
registered with the Registrar of Societies. An amount
of 1 billion ringgit will be issued with a rate of
return of 5 per cent, of which half would be issued
based on Islamic principles.
80. Shelter is a basic need. Therefore, efforts will
continue to be made to increase the number of houses,
particularly low-cost housing. A sum of 943 million
ringgit has been allocated for several low-cost housing
projects, including 143 million ringgit loans to State
Governments to implement 124 Public Low-Cost Housing
projects. An allocation of 793 million ringgit is also
provided for the implementation of the Integrated
Rakyat Housing Programme in Wilayah Persekutuan Kuala
Lumpur and in other urban areas. These houses will be
rented out to the lower income group. As a caring
Government, we will ensure that the construction of
public low-cost houses will also provide facilities,
especially for the disabled.
81. The Government is also concerned about the housing
problems faced by civil servants, particularly those in
the Armed and Police Forces. An allocation of 1.08
billion ringgit is provided for the construction of
quarters, which includes 710 million ringgit for the
Armed Forces, 197 million ringgit for the Police Force
and the balance of 173 million ringgit for civil
servants.
82. In line with the objective of a healthy society
and a prosperous nation, the Government will continue
to improve health service facilities. A sum of 6.3
billion ringgit is allocated to the Ministry of Health
to continue, among others, the implementation of
hospitals as well as health and rural clinic projects.
Among the health and medical facilities, focus will be
given to improving women and children's health, disease
control, nutrition as well as providing modern
equipment and facilities.
Women
83. In recognition of women's role in economic
development, the Government has set up the Ministry of
Women and Family Development. With the establishment
of the Ministry, issues and problems relating
specifically to women, including children and families
will be given a more focussed attention. In this
regard, Article 8(2) of the Federal Constitution has
been amended to include the word `gender' to ensure
that laws and policies do not discriminate against
women. The Ministry has also launched the Women Against
Violence Campaign on 23 July 2001.
84. The Government is aware that the female labour
force participation rate at 44.5 per cent is lower than
the 60 per cent level in developed countries. Women in
Malaysia are fortunate that the Government encourages
and provides equal opportunities in all fields of
employment, unlike in certain states, which do not
encourage women to work. In fact, Saidatina Khadijah,
wife of the Prophet, was a prominent and wealthy
entrepreneur during her time. Another of His wife,
Saidatina `Aisyah led troops in the Battle of Jamal.
Many women provided medical services to Muslim soldiers
injured during the battle. We must remember that
Muslims make up only 60 percent of the population, of
which half is women. If women are not allowed to
contribute to the development of the Muslim community,
the Muslim workforce will be reduced by 30 per cent.
They are already weak and will become even weaker.
85. Greater focus will be given to specific programmes
aimed at improving the quality of women's lives,
particularly in rural areas, developing female
entrepreneurs as well as eradicating the gender bias in
all respects. The implementation of these measures
reflects the Government's commitment in ensuring that
equal opportunities are provided for women. A sum of 59
million ringgit has been allocated to finance
programmes, specifically for women.
86. Currently, widows receiving their late husband's
pensions will lose the benefit if they re-marry. I
propose that they continue to receive the pension even
if they re-marry. It is hoped that there will not be
many who will marry a second wife and leave their first
wife because of this provision.
Youth and Sports
87. Youths are the nation's greatest asset and have
the potential to contribute towards development. In
this respect, the Rakan Muda Programme will be
continued with renewed features and form part of the
national agenda for the development of youths. A total
of 3.5 million youths will participate in more than
35,250 activities at the national, state and district
levels under this programme. Participation in the
National Social Service Programme for youths which aims
to cultivate self-reliance and inculcate good values
will be extended to 20,000 youths. The programmes will
be for students awaiting their SPM examination results.
The promotion and publicity for the Rakan Muda
Programme will be organised on an on-going basis to
attract youths to participate in activities that suit
their interests. A sum of 81.8 million ringgit has been
allocated for these programmes.
88. The Government wishes to congratulate and record
its appreciation to the national SEA Games contingent
for their overwhelming success in attaining the
nation's best ever SEA Games performance, with 111 gold
medals. Training efforts for our national athletes
will be intensified to enable them to excel in the
Asian and Olympic Games.
89. Sports and recreational activities will be
enhanced. As sports is for people of all ages,
additional activities in the form of competitions for
ordinary people will be organised. In addition, new
sports activities such as extreme sports and motor
sports will continue to be introduced through
competitions and demonstrations. In 2002, Malaysia will
host an extreme sports event at the Asian level. This
new sport is aimed at attracting the interests of
youths as well as to spend their time constructively
and productively.
Combating Social Ills
90. We have witnessed the increase in social ills in
our society. Recently, the nation has been jolted by
unprecedented acts of violence. The Kampung Medan
incident has marred the unity that we have so
painstakingly built up. Moral decadence among youths
is a serious concern. The number of drug addicts and
HIV-AIDS patients has increased. Criminals have
become more violent.
91. The bitter experience of 1969 underscores the
importance of fostering and preserving national unity.
Programmes to create community awareness as well as
build a sense of responsibility in addressing social
issues will continue to be implemented. In this
regard, a sum of 6.8 million ringgit has been allocated
under the Ministry of National Unity and Community
Development to carry out programmes under the Social
Action Masterplan (PINTAS). This Plan incorporates
measures to enhance cooperation and participation at
all levels to ensure that every member of society leads
a healthy and good quality life, free from social ills.
An allocation of 7.7 million ringgit is provided for
the National Social Service Programme under the
Ministry of Youth and Sports to combat social ills
among youths, particularly secondary school leavers.
92. A sum of 312.4 million ringgit is allocated to
eradicate drug and crime-related problems. Of this, an
amount of 140.4 million ringgit is for crime
prevention, mainly to combat drug smuggling and abuse,
besides improving treatment for drug addicts. An
allocation of 282,500 ringgit is provided for voluntary
organisations, such as PEMADAM and PENGASIH. A sum of
172 million ringgit is provided to accelerate crime
investigation through the use of modern techniques,
such as DNA profiling to trace criminals.
93. To assist voluntary non-governmental organisations
to step up activities in AIDS prevention and drug abuse
as well as the HOSPIS programme for treating serious
cancer patients, the Government will provide a matching
ringgit for ringgit grant for sums raised by these
organisations, up to a maximum of 1 million ringgit. A
special allocation will be provided for drug addicts
affected by HIV-AIDS.
94. Public awareness on the hazards of smoking is
still low among the rakyat. A matter of serious
concern is the spread of smoking habit among school
children. Recognising this, I propose that import duty
on cigarettes be increased from 180 ringgit per
kilogramme to 216 ringgit per kilogramme while excise
duty be increased from 40 ringgit per kilogramme to 48
ringgit per kilogramme. The Government is aware that
this measure may increase smuggling activities. In this
respect, a more aggressive and effective approach will
be taken to ensure that smuggling activities are curbed
by increasing administrative efficiency of the Customs
Department and other enforcement authorities.
95. The Government acknowledges and appreciates the
spirit of volunteerism and commitment shown by various
voluntary organisations. In this regard, an allocation
for an operating grant of 22.9 million ringgit and a
development grant of 6 million ringgit are provided to
375 voluntary welfare organisations. Among the new
facilities, four day-care centres for the elderly
managed by NGOs are expected to commence operation by
2002. A new institution, Kompleks Penyayang BAKTI
Sungai Buloh has been established to provide care and
protection for children, the elderly and single
mothers. In addition, about 10 million ringgit is
allocated for voluntary organisations to provide
haemodialysis services.
Public Service Sector
96. The Government appreciates the contribution of the
civil service in spearheading development efforts. The
Government is also aware that with the support and
commitment of civil servants, policies and programmes
for the benefit of the rakyat have been implemented
effectively. I believe the excellence and
professionalism of the civil service will continue to
be enhanced, particularly in the light of greater
difficulties in both the external and internal
environment. This should not dampen our spirit,
instead it should serve as a challenge for the civil
service to strive harder towards achieving excellence.
The nation needs the dedication of all civil servants.
There is no need to resort to armed struggle. Our
struggle is more of attaining economic achievements and
upholding the nation's sovereignty. We should
strengthen our resolve, redouble our efforts, inculcate
trust and sincerity as well as promote an excellent
work culture.
97. As a record of appreciation for the commitment
and dedication of the civil service, the Government
will award a bonus of half month salary or at least
1,000 ringgit for 2001. Half of the bonus will be paid
in October and the other, in November. I hope the bonus
will be able to meet expenses for the coming festivals
as well as for those with school-going children, when
schools reopen. The Government is concerned about the
income of its officers and staff. As such, if its
financial position permits, the Government can consider
a salary increase for the civil service. The last
salary revision was implemented in 1995. The Government
further increased the basic salary by 10 percent in
2000. Now, only two years after the last revision, the
Government has decided to once again increase salaries
in 2002, by another 10 per cent, representing an
increase in income of 1.2 months a year. This increase
is possible given the higher Government revenue as a
result of economic growth and the Government's prudent
financial management. We hope this bonus payment and
the salary increase together with the abolition of the
limit on bonus payment by the private sector will
contribute to increasing the purchasing power of the
majority of the rakyat. I also hope that this will
encourage us to double our efforts towards increasing
productivity and thereby, contributing to growth of the
economy.
98. To improve the scheme of service of Medical
Officers in the public sector, the rate of Overtime
Allowances will be increased from 25 to 50 per cent,
effective 1 October 2001. This increase is expected to
further enhance the motivation of Medical Officers
burdened with additional work as well as minimise wage
differentials between Government Medical Officers and
those in the private sector.
99. In appreciation of the contribution of volunteers
in the security forces, particularly the Malaysian
Armed Forces, Royal Malaysian Police and Civil Defence,
the Annual Gratuity Rate for officers and personnel
will be increased from 400 ringgit to 520 ringgit,
representing an increase of 30 per cent, effective 1
October 2001.
100. For volunteers in the Malaysian Armed Forces, the
specialist grant for officers, which has not been
revised since 1958, will be increased by 100 per cent
from 150 ringgit to 300 ringgit annually. For those in
other ranks, the increase is from 100 ringgit and 75
ringgit to 200 ringgit, effective 1 October 2001.
Development of Islam
101. The Government continues to uphold the
understanding and knowledge of true Islam and the
development of the Muslim community in this country.
In this connection, the Government will continue to
provide adequate allocation under Jabatan Kemajuan
Islam Malaysia (JAKIM) to implement various development
programmes for the benefit of the Muslim community. A
total of 294.3 million ringgit is allocated for the
implementation of programmes for the development of
family institutions and the provision of social
services, greater understanding and assimilation of
Islam, education programmes in religious schools and Al-
Quran and Fardhu Ain classes. In addition, the
Government will also continue to implement several
development programmes under JAKIM. These include the
building and renovation of mosques and Islamic training
complexes, the building of religious schools as well as
the development of an information system.
102. In line with the desire of the Government to meet
the required number of Muslims who are able to recite
and memorise the Al-Quran, the capacity of Maahad
Tahfiz Darul Quran in Kuala Kubu Bharu, Selangor will
be increased when the second phase of the construction
of the Maahad Tahfiz is completed.
103. The Government also intends to implement more
programmes on the understanding of the correct
teachings of Islam for students in public and private
higher learning institutions, among officers and
personnel in Government as well as in the private
sector. Towards this end, courses will be conducted on
strengthening religious beliefs, spiritual development,
appreciation of Islam and human development. The
objective of the Government is to establish a
religiously correct Muslim community. This will only
be achieved if there is no deviation by those given
responsibility to teach Islam. For those who propagate
teachings that are against the true teachings of Islam,
such as hatred for other Muslims, rejecting brotherhood
of Muslims and branding other Muslims as infidels and
spreading slanders, the allocation will be terminated.
The allocation provided is for purposes of propagating
the knowledge of Islam and not otherwise.
Implication of Tax Proposals
104. The reduction and abolition of tax proposals will
result in a loss of Government revenue totalling 1.2
billion ringgit. At the same time, the Government has
increased expenditure as a measure to stimulate
domestic economic activities. Thus, the Government
must seek other sources of revenue to strengthen its
financial position. Therefore, I propose that:
i. the threshold for the imposition of service tax for
restaurants, bars, snack bars and coffee houses, private
clubs and advertising companies be reduced from an annual
sales turnover of 500 thousand ringgit to 300 thousand
ringgit and above; and
ii. the threshold of 300 thousand ringgit annual sales
turnover for the imposition of service tax on
professional services be reduced to 150 thousand ringgit.
In this respect, the Government will step up
enforcement and conduct street surveys to curb tax
evasion.
105. In addition, the Government has provided
substantial subsidies totalling 4.4 billion ringgit, of
which more than half is petroleum subsidy. To reduce
the financial burden of the Government, I propose that
this subsidy be reduced by increasing the retail price
of diesel by 10 sen per litre. In addition, the subsidy
for diesel is provided only for diesel supply for the
use of land transport, Government and fishing boats.
In line with this increase, I also propose the retail
price of petrol be increased by 10 sen per litre. These
proposals are effective from 20 October 2001.
IV. ECONOMIC PROSPECTS FOR 2002
106. Global economic growth and world trade in 2002 are
expected to remain uncertain. We are unsure whether
the United States will be able to avoid an economic
recession. However, we also expect that the recovery
of the US economy will be delayed. The prospect for
recovery of the Japanese economy is also not
encouraging. Given the less favourable external
environment, the nation's economic growth will be
driven by domestic economic activities. Our economic
growth is expected to increase between 4 to 5 per cent
in 2002 with Gross National Product (GNP) remaining
high at 370 billion ringgit. All major economic
sectors will continue to record growth, mainly led by
the manufacturing and services sectors. The increase
in the growth of the manufacturing sector is expected
to be driven by the recovery in global demand for
electronics while the services sector will be supported
by the continued pick-up in domestic economic
activities. Domestic demand at current prices is
expected to increase by 5.5 per cent, mainly on account
of the growth in private sector expenditure of 6.6 per
cent. The public sector, however, continues to grow,
albeit, at a slower rate of 3.1 per cent.
107. The economic prospects remain encouraging given
the nation's strong economic fundamentals. External
reserves has stabilised at a higher level of 113.7
billion ringgit or 29.9 billion US dollars as at 15
October, sufficient to finance 4.7 months of retained
imports. The external trade balance recorded a surplus
for 46 consecutive months since November 1997 through
August this year. Gross National Savings is still at a
high level at one-third of GDP. The banking system
continues to strengthen with the risk-weighted capital
ratio at 12.6 per cent, which is above the
international standard of 8 per cent. The level of
short-term debt is low at 5.2 per cent of GDP, while
the debt service ratio remains sustainable.
108. With higher GDP growth, per capita income is
expected to increase by 4.7 per cent to 13,962 ringgit
in 2002 compared to 13,333 ringgit in 2001. With
inflation at a low level, per capita income in terms of
purchasing power parity will increase by 5.1 per cent
to 9,403 US dollars in 2002 from 8,944 dollars in 2001,
reflecting the higher purchasing power of the rakyat.
109. The Government will continue to implement
unconventional measures based on our own approach which
have proven to be successful and effective in managing
the economy. In this regard, the ringgit peg will be
maintained. However, the Government will continue to
monitor domestic and external developments to ensure
that the value of the ringgit is consistent with the
nation's macroeconomic fundamentals. Given the
volatility in foreign exchange markets, the Government
will ensure that the ringgit exchange rate remains
stable.
110. The growing difficulties in the global economy
occurred at a time when the nation is just into the
first year of the Third Outline Perspective Plan and
the Eighth Malaysia Plan. To achieve the long-term
objective of Vision 2020 for Malaysia to become a
developed nation, both Plans envisaged an average
annual growth rate of 7.5 per cent. Since economic
growth for 2001 and 2002 are expected to be lower, we
have to redouble our efforts to accelerate growth for
the remaining years of the Plans.
111. With the nation's economic fundamentals remaining
strong, we are confident of achieving our growth
targets. However, we must redouble our efforts towards
realising this objective. Our experience during the
recent financial crisis has shown that we can
successfully overcome the worst recession, when
economic growth contracted by 7.4 per cent in 1998.
The economy was able to rebound quickly in the
following years, enabling us to achieve the average
growth target of 7 per cent under the Second Outline
Perspective Plan.
CONCLUSION
112. This year's Budget is tabled amidst an extremely
challenging time with increasing volatility in the
external environment. While our economic fundamentals
remain strong, there exists several constraints in the
domestic economy that have to be overcome. We also
face problems of social ills and threats to national
unity. Peace and stability are the cornerstone of
economic progress. Good planning and excellent
development plans will come to nought, if there is no
peace and harmony. Extremism has no place in our
society. We have a truly democratic process. Every
rakyat has the right to elect the government through
the ballot box without resorting to violence or force
of arms or creating chaos. Extremism is against the
principles of all religions, more so in Islam, which
promotes peace and prosperity. Islam abhors those who
create chaos as in verse 77 surah Al-Qasas as follows:
"... and do thou good, as Allah has been good to thee,
and seek not mischief in the land, for Allah loves not
those who do mischief".
It is not mentioned in the verse that we should do good
only to Muslims. As long as others are not our foes,
we should do good and be fair to them.
113. During the past four decades, the nation has
achieved excellent economic progress and has been a
model to the world. The progress that we have achieved
has not come easy. It is also not solely attributable
to our abundant natural resources. Our success has
been accomplished through our planning, our policies
and strategies, our efficient administration
untarnished by widespread corruption, our peace and
stability as well as our upholding of religious values.
Of utmost importance is the rakyat's unwavering support
and untiring efforts as well as their sacrifice.
Keranamu Malaysia.
114. Social cohesion builds a strong nation. A society
which is self-reliant, upholds noble values and
practises good ethics, tolerant, caring and just as
well as equipped with knowledge will propel the nation
towards greater progress and achievements.
115. We pray to the Almighty to bless us with strength,
resolve and perseverance to face all adversities,
bestow us with courage and determination to strive for
prosperity and uphold our nation's sovereignty. With
the Almighty's blessings, we will be able to build a
peaceful, progressive, harmonious nation, free from
foreign pressure and well respected by all.
116. I beg to propose.
Sumber : Pejabat Perdana Menteri
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