FULL TEXT OF PM'S BUDGET 2002 SPEECH
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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 I Government of Japan has agreed in principle to provide a loan to MA VCAP, 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. Meanvt/hile, 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.
     
   

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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.
     
   

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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 EnvironmentalSanitation 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 As/i. 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 As!;, involving 412 villages.
     
   

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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 Term;sk;n 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.
   

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