Tax Update-1998 Budget Issues

October 1997


Malaysia's 1998 Budget was announced on October 17, 1997 at a time when the country together with its neighbouring ASEAN nations face the challenges of both currency and stock market turmoil. Despite the current crisis, the fundamentals of the economy are sound. The country experienced its tenth consecutive good year of GDP growth in 1997, estimated at 8% (1996 : 8.6%). The CPI measure of inflation showed a 2.6% year todate increase, against 3.6% during the corresponding period in 1996. The balance of payments situation although narrowing, remains the perennial dark cloud, with a current account deficit of RM13.1 billion or 5% of GNP (1996: RM12.3 billion; 5.2% GNP).

Overall, the Budget is somewhat painful and may appear unpopular compared to those of the last few years. However, it reflects the Government's ability to respond speedily to address current major concerns. Measures introduced are intended to consolidate the country's buoyant growth over the last ten years and address the pressing problem of the weak ringgit and the widening current account deficit. The 1998 Budget Strategy is to :-

  1. strengthen economic fundamentals and stabilise financial markets;
  2. maintain sustainable growth;
  3. continue the process of deregulation and liberalisation of the economy; and
  4. continue the social agenda for further overall development.

Underlying the Budget is the Government's determination in addressing the current account deficiency. Strict measures in an effort to reduce imports and incentives to increase exports have been introduced. As expected, custom duties on imported motor vehicles have been increased, with some categories facing increases of up to 800% of existing tariffs.

This report covers the 1998 Budget tax proposals, based on the Finance (No. 2) Bill 1997, the 1998 Budget Speech and other instruments in respect of indirect taxation. The proposed changes herein are subject to enactment.

As this publication has been prepared for clients and associates by way of general information, further details may be required. Readers are kindly advised to consult with us at any of our offices before acting on any material contained in this publication.

Kassim Chan Tax Services Sdn Bhd
Deloitte Touche Tohmatsu Tax Services Sdn Bhd

Kuala Lumpur, Malaysia
October 17, 1997


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This report is reproduced with permission from Kassim Chan Tax Services Sdn Bhd (36421-T) and Deloitte Touche Tohmatsu Tax Services Sdn Bhd (151497-P). 7th Floor, 3 Cangkat Raja Chulan 50200 Kuala Lumpur, Malaysia or P.O.Box 11151, 50736 Kuala Lumpur, Malaysia.
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