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Second
Strategy: Diversifying Sources of Growth
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
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.
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.
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
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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
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.
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