Prime Minister Datuk Seri Najib Tun Razak today announced the introduction of the Goods and Services Tax (GST), and proposed the abolition of the sales and services tax as one of the measures to strengthen the fiscal management and to make the Malaysian economy more resilient.
"I must stress that GST is not a new tax," he said when presenting the Budget 2014 at Dewan Rakyat.
The new equitable tax will be effective on 1 April 2015.
To counter the effects of the GST, the government will provide RM300 under Bantuan Rakyat 1 Malaysia (BRIM) and lower personal tax rates by 1% to 3% and this will result in 300,000 taxpayers, who are currently paying tax, no longer be in the tax net.
The highest tax bracket threshold of RM100,000 will be raised to RM400,000 while the maximum tax rate will be reduced to 24%, 24.5% and 25%.
Corporate tax rate which currently stood at 25% will be reduced to 24% while SME’s tax rate will be reduced to 19%.
The government had also introduced an innovation to the taxpaying mechanism with the provision that the tax paid by taxpayers on a monthly basis be treated as a final tax. The taxpayers with employment do not need to file their tax returns from year of assessment 2014.
The 2014 Budget also addressed the concerns of soaring house prices, inadequate supply of houses and difficulty in getting home financing.
"I hear the grouses of the rakyat who wish to own a comfortable home especially from those in the low and medium income groups," said Najib.
To increase the people's ability in buying a house and ensuring stable house prices, the Government has proposed to review the current Real Property Gain Tax (RPGT).
The current RPGT will be altered, so under the new structure, disposal of properties will attract tax at 30% for properties sold within 3 years. The threshold for foreign property ownership will be raised to RM1 million from the current RM500,000.
An estimated 223,000 units of new houses will also be built by the government and the private sector next year. The government will also abolish the Developers Interest Bearing Scheme (DIBS).
The budget outlined five main thrusts: invigorating economic activity, strengthening fiscal management, inculcating excellence in human capital, intensifying urban and rural development, and ensuring the well being of the people.
The 2014 Budget has allocated RM264 billion to implement projects of which RM217 billion is for operating expenditure and RM46.5 billion as development expenditure. Meanwhile the government is expected to collect a revenue of RM224 billion and its deficit is expected to decline to 3.5% from 4% currently which, as the Prime Minister said, showed the government's commitment towards fiscal prudence.
In order to aid the aviation industry, the government will replace the air control system at the Subang and Kuala Lumpur International Airport at a cost of RM700 million. It will also upgrade airports in East Malaysia for RM312 million.
In line with Visit Malaysia Year 2014, the government will defer the expiry of Investment Tax Allowance and Pioneer Status for the construction of 4 and 5 star hotels.
As a further incentive, financing valued at RM2 billion will be provided to boost the tourism sector.
As Malaysia is the global leader in sukuk, the Socially Responsible Sukuk Instrument will be introduced to invest in listed companies with high accountability and transparency.
Najib also announced that the BR1M payments will also been raised from RM500 to RM650 for households earnings RM3,000 per month and below.
According to the World Bank, the global economy is expected to grow at a rate of 2.9% for 2014.
The Malaysian economy had come under the full glare of the world when global rating agency, Fitch, downgraded Malaysia’s debt. The repercussions of the downgrade could put further pressure to Malaysian coffers as cost of borrowings moved north.
Najib also emphasised that Bursa Malaysia had reached its all time high at 1,818 points marking incresed participation from domestic and foreign players.
In his speech, the PM also said that the gross domestic product (GDP) was expected to grow between 5% to 5.5% for 2014.
Meanwhile, inflation is expected to be benign at 2% to 3% while unemployment is expected to be stable at 3.1%.