TABLE OF CONTENTS
The Prime Minister and Minister of Finance, YAB Dato’ Sri Haji Mohammad Najib bin Tun Haji Abdul Razak unveiled the Malaysian Budget for the year 2015 (“Budget”) on 10 October 2014. The theme of the Budget is "People’s Economy” and is formulated to ensure economic growth and the well-being of the “rakyat” (people of Malaysia).
The Budget focused on seven main strategies, namely strengthening economic growth, enhancing fiscal governance, developing human capital and entrepreneurship, advancing the bumiputera agenda, upholding the role of women, developing the National Youth Transformation Programme and prioritising the well-being of the rakyat.
There are some highlights of the Budget, that are income tax, goods and services tax (‘GST’), real property gains tax ("RPGT"), stamp duty, incentives and review of tax system. For income tax, there is reduction in corporate income tax rates, reduction in individual income tax rates and reduction in co-operatives' income tax rates. Whereas for goods and services (GST), during the Budget 2014 announcement, it was proposed that basic food items and services will not be subject to GST.
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For real property gains tax (‘RPGT’), there is increase in sum withheld by purchaser for RPGT and implementation of Self-Assessment System for RPGT. Whereas for stamp duty, there is an extension of stamp duty exemption for first residential property purchases.
For incentives, they include capital allowance to increase automation in labor intensive industries, tax incentive for industrial area management, tax incentive for establishment of principal hub and tax incentive for training, tax incentives and assistance for GST implementation, tax incentives for Investment Account Platform (‘IAP’), extension of tax incentive for Issuance of Sukuk. While for review of tax system, time bar for transfer pricing adjustments, increased penalties for offences under the income tax act, change in due date for monthly corporate income tax instalments.
Another point that makes Malaysia Budget 2015 no longer realistic is the GST imposed. GST is stands for Goods and Services Tax which replacing the Sales and Services Tax (SST). Over 160 countries have been using GST as one of the country’s income. It was one of the contents in Malaysia Budget and was implemented on 1st April 2015.
GST is one of the steps that government takes to improve money system and also to get income from increasing tax. All companies that earn more than RM 500,000 is compulsory to register GST. GST is imposed on different level of production and distribution in the supply chain from production to consumer at a fixed rate which is 6%. There are three types of GST which are standard-rated GST (for clothes accessories and household goods), Exempt rated GST (for foods and education materials) and zero-rated GST (for residents and health care).
In budget 2015 have stated that RM300 one-off GST cash assistance for BR1M recipients under the low income and middle income. The question is, is it enough for one year, twelve months, 365 day? As my personal opinion it is totally not enough. Everyday people need to buy many things. The value of RM300 can finish only in one time. GST is not suitable for our country because the poor family become poorer. Besides, the GST can be used in our country in case increasing our income. In some situations it might happen, for the seller it is their change to increase the price and government was happy increase the price any time. Survey about GST which conducted by the student, have one of the respondent stated the country will have inflation. As my opinion yes it will be happened in long time, because the value of money is fall. In abroad country, such as United Kingdom this GST suitable for them because the government maintained their people welfare for example those with low income people were given houses, those laid off were given a monthly allowance, benefits were given to the newborn child and free health care.
In Malaysia it is not done so why should burden people with high payment taxes. On the other hands, the less obvious explanation, it appeared like a whole community know about the GST, but the fact is not. For example, the eggs do not have GST but in certain market have increase in price of the eggs. So this is what called as traders raised the prices in order to not bear the burden of tax. Once again, GST is not suitable in this country, the people have negative mindset that GST is a burden. In order avoid this government had to take fast action to go every market in Malaysia to recheck back the price and try to standardize the prices of things.
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PTPTN: DISCOUNT, REBATE RATE ISSUE, AND UNSETTLED DEBT
The PTPTN (Perbadanan Tabung Pendidikan Tinggi Nasional) is a government agency that provides study loans to Malaysian students. The purpose of establishing PTPTN Education Financing Scheme was for providing education financing to students pursuing studies in local institutions or higher education. This will enable students to get an education financing that finance fully or partially their cost of living and the course fees for the duration of their study. Therefore providing more opportunities for students to pursue study another level of study.
The problem that occurred with PTPTN is that the amount of debt that has yet to be paid by its debtors has accumulated to a mind-bogglingly high amount of money. Since PTPTN’s establishment in 1997, loans worth RM47.8 billion were taken by 2.1 million borrowers. Unfortunately, until last year, only 46% or RM5.36 billion of RM11.76 billion has been paid back or collected.
As of 31st of March, 605,685 borrowers of PTPTN have yet to settle their debts that reach up to a total of RM4.7 billion. These borrowers are among the total number of borrowers that are required to settle their payments which number up to 1,716,475 borrowers, with the total debt of RM13.3 billion. 64.7% (1,110,790) of the total number of borrowers has begun to pay their debts, with the amount of money collected reaching up to RM6.2 billion which is 46.9%.
PTPTN has always been putting efforts to improve the performance of collection of money from borrowers by taking various actions such as offering incentives in the form of discount up to 20% for the amount of debt to be paid if the borrowers are able to settle their debts before 31st of March 2015. Another action that has been undertaken by the PTPTN is the enforcement of blacklisting and summons to stubborn debtors. Other than that, the PTPTN has also made improvements to the debt management model especially on the debt collection management in the PTPTN system.
Furthermore, for the debtors that are unable to settle their payments before 31st of March 2015, even though they will not be able to enjoy the 20% discount, they will still be able to enjoy a 10% off their loans if they make continuous payments for 12 months until 31st of December 2015.
There are two problems that arose, the first is regarding the failure of some borrowers to settle their debt, and the second is the high amount of expenditures the government are going to make due to the discount and rebate rates imposed. The government has already been subsidizing the Ministry of Education heavily, and these two issues will surely increase the strain on the government’s already stretched budget. The government has already been facing a budget deficit for over a few years and one of the major factors of this predicament is the substantially large amount of subsidy that the Malaysian government provides.
For every one ringgit that the borrowers fail to repay, means one ringgit less that the Malaysian Government will be able to receive and put to good use for the development of the country. This problem is worsened when the government imposes discounts and rebates to borrowers in an attempt to encourage borrowers to repay their debts. The negative effect is greater than the positive effect. The negative effect is the government has to make more expenditures to cover the 20% taken off from the total debt of the PTPTN borrowers that are eligible to receive the discount. The positive effect is more borrowers has begun to settle their debt, but a large number of borrowers that has yet to repay their debts still remains.
The conclusion that can be obtained from these issues supports the view that the Malaysian Budget 2015 is no longer realistic and needs to be revised so that there will be less wastage of money and so that the money can be channeled to more beneficial areas that can provide the government with returns and profits and thus alleviating the budget deficit.
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EXPANSION OF 1 MALAYSIA PEOPLE’S AID (BR1M) AND STUDENT ALLOCATION
Expansion of 1 Malaysia People’s Aid (BR1M) and student allocation is another issue that shows that Budget Malaysia 2015 is no longer realistic.
BR1M, is a government scheme that was first establishedin 2012. The purpose of the BR1M scheme was to offer some assistance to households that fall intothe low-income group, in order to combat the rising cost of living. The increased revenue collection from Goods and Service Tax (GST) and the affordability of government contributes to an increase of RM 300 in BR1M. There is an increase in assistance for households with a monthly income of RM 3,000 and below which are from RM 650 to RM 950. It is pay out in three instalments of RM 300 each to be paid in January and May with the balance of RM 350 from September 2015. For households with a monthly income between RM 3,000 and RM 4,000, the government increased the BR1M from RM 450 to RM 750. This assistance is disbursed in three instalments that is RM 200 to be paid in January and May while the balance of RM 350 from September 2015. For individuals who are single which aged 21 and above and with a monthly income not exceeding RM 2,000, the BR1M has been increased from RM 300 to RM 350 a year. This assistance is disbursed early of the year 2015. In Budget Malaysia, government has announced the replacement of Takaful insurance or i-BR1M with Family Bereavement Scheme. The new scheme entitles the next of kin of BR1M recipients to receive RM 1,000 effective for a year.
So far, BR1M has been distributed four times, totaling roughly over RM 17 billion of taxpayers’ money paid out to date -an estimate based on the amounts dispensed each time. Last year alone a total of 6.48 million individuals have received the BR1M involving an allocation of RM 3.37 billion, according to a Bernama report.
In our opinion, the BR1M is good for short-term as it provides the deserving members of the society some extra money to purchase necessities and brings temporary relief to them, but it does not seem to be the best approach in the long-run. Economically, there is a positive multiplier effect that the handouts trigger in domestic consumption. When overall spending in the economy increases, the businesses, salaries, and corporate tax reflect the positive increase and the government earns the money back in taxation. So, BR1M is just like rolling up the money through a cycle. In addition, if the government continues to distribute the monetary handouts to the people, it will definitely increase the people’s dependence on the government.
Even though BR1M is basically a positive approach to help the needy, but it should be targeted only to the deserving members of the society who are really in need or those poverty-stricken family. This phenomenon can be labelled as ‘blanket subsidy’ as BR1M does not really help in terms of solving financial problems faced by the people in need since it is only a one-off monetary aid. Instead, the government should come out with long-term measures that is more effective than that of short-term. For example, they should introduce the price rationalization for essential items, increase the disposable income, provide more avenues to generate money and offer coupons to the poor for buying essential items. Other than that, the government should also increase or set a minimum wages to employees both in government and private sectors to help those in need to alleviate their financial burden.
However, 1 Malaysia Book Voucher Program (BB1M) is one of the measures in Budget 2015 for student allocation. Government has continued to give out BB1M, the assistance of RM 250 per student for the purpose of purchasing reference books and educational instruments. For the purpose of this program, RM 325 million were allocated and about 1.3 million students is expected to enjoy the benefit from it. Students can use this voucher only to buy reference books, except for the fulfilment of purchase then students are allowed to buy stationeries. But, there was abuse BB1M when there are those allow students to use it to buy electronic gadgets, computer equipment, cell phones, clothing, mobile value-added, food and much more. The government’s initiative to reduce the financial burden on students to purchase reference books and encourage reading community through BB1M is not fully utilizes by some of the students for academic purposes. Therefore, government should take other actions that will really alleviate the misuse of BB1M.
In conclusion, BR1M is a ‘short-term solution’, more targeted subsidies to the poverty-stricken are needed, the urgent need for more long-term measures, the underlying notion is that BR1M is not sustainable economically or politically, and cannot last forever and the legal actions should be taken on misuse of BB1M on non-academic goods. This could contribute to make Budget 2015 a realistic.
The 2015 Budget was tabled by our Prime Minister in Parliament on 10 October 2014. Unfortunately the 2015 budget seem no longer relevant to us since the budget 2015 was formulated based on strong economy in 2014. The global economic landscape has change in very significant ways, impacting Malaysia as one of the countries with biggest trade in the world.
As we know, the world now is facing an unexpected drops in oil price. Earlier during the budget 2015 was formulated, the oil price was hovering above US$110 per barrel but now the oil price has fallen below US$50. Since Malaysia is one of the country that highly dependent on petroleum as the main source of income. We had to bear severe impact on our economy that affect our income due to the fallen of oil price.
Figure 1: Graph on oil price (21 January- 23 January 2015)
However, like it or not, the world’s economic landscape has changed and dropping in oil price was beyond the government’s control. The price of oil which has been the main source of our income has fallen drastically causes insufficient of money to realize 2015 budget. Therefore, some of the plan that has been formulated in budget 2015 can no longer be accomplished. In order to secure the country’s economy, the government had to take rapid action by cutting some of the budget that seems irrelevant to today’s bad economy situation to pay for other important needed expenses in order to cover the deflation that occurs.
The falling in oil price tends to cause our country experiencing deflation that cause debt default to be widespread resulting from lay off from jobs, oil exporters collapsed, loss of letters credit needed for exports and failures of bank that indirectly direct to a rapid decline in oil production as the production is manipulated by the price, therefore, this affecting our overall government’s financial including bank deposit and international trade. The shale drillers are having difficulty to pay back the loan they have borrowed since the interest rate for a new loan are likely to be much higher but the cash flow seems to be much lower. At one point, the huge amount of debt that share drillers have taken on suddenly becomes at-risks in substantial amount.
Due to the deflation, our country are likely experiencing an outflow of investment funds as soon as the investors realised that their investment will not get an adequate return. This will tend to push the currencies down, relative to other currencies and cause our country to face inflation. As we know when the oil price has fallen, the stock market and ringgit also fallen. Hence, 2015 budget seems no longer relevant to be implemented.
When the oil price has fallen, the government will still induce tax on consumer to overcome the impact on dropping of oil price. The tax will cause the consumer in so much burden. People have to pay more on goods and services to stay in convenient condition. When people are in burden it far from the objective 2015 Budget that give people more opportunities to get more income and live in a sustain or stable in their economy.
In a conclusion, dropping in oil price has given big impacts towards our economy and effect our budget. Thus, 2015 Budget was no longer realistic anymore.
The initial function of budget actually is to make life better. Decision were makes with best possible information (budget) but when we review back to our 2015 budget announced by our prime minister last October, it shows us that it is no longer realistic.
For example, imposed government services tax were not properly implemented where the government did not take full care on maintaining their people welfare like others country does. PTPTN discount, rebate rate issue, and unsettled debt for the borrowers will induced more debt to government. While the expansion of 1 Malaysia People’s Aid (BR1M) and student allocation (BB1M) for example will only increases the burden on Malaysian economy. People tends to misuse it for other purposes. When this happen, the money paid by taxpayer were wasted in large amount where it is actually can be use in other sector to boost our economy. When oil price fallen government cut off many subsides and incentives which burden the people especially those with the low income.
Based on the issues we had discuss in previous part, we strongly believe or agree that the Malaysia Budget 2015 are no longer realistic. Not only creates more burden to our country it is also makes the ‘rakyat’ suffers more injustices. The economy of the country will be also dragged down by such unrealistic budget.
 An Islamic financial certificate, similar to a bond in Western finance, that compiles with Sharia, Islamic religious law.
 . New Straits Times, 2nd May 2015, page 18
 Utusan Malaysia, 23rd April 2015, page 15
 http://www.malaysiandigest.com/features/539720-does-br1m-really-help-let-s-hear-what-malaysians-think.html.2014.( accessed on 7 May 2015).