Budget 2018 to focus on digital economy, says MARC

According to the company, the govt will take important steps to prepare the country for structural changes in the next decade or so


The upcoming Budget 2018 is expected to focus on both short-and long-term measures to sustain economic resilience, as well as introducing more steps to further embrace the shift towards a more digitalised economy.

Malaysian Rating Corp Bhd (MARC) also predicts Malaysia’s economic growth will stay at 5.2%. The forecast for this year was initially at 5.5% overall, while Malaysia posted higher than expected gross domestic product (GDP) growth rates of 5.6% and 5.8% in the first and second quarters of 2017 respectively.

MARC expects budget deficits to slip marginally to circa 2.8% of GDP in 2018, as higher oil-related revenue and the Goods and Services Tax (GST) add to the government’s coffers while spending is rationalised.

“With private consumption likely to grow circa 6.7% in 2018, GST revenue will, in our view, be within the range of RM40 billion to RM45 billion, constituting about 20% of total revenue,” MARC said in a statement yesterday.

On the digital economy, MARC believes the government will take important steps to prepare the country for structural changes in the next decade or so.

“These long-term challenges would include the readiness to embrace the fourth industrial revolution (Industry 4.0) in order to enhance productivity and increase future capacity through automation, and the interconnection of industrial production and the logistics chain,” MARC said.

The government aims to increase the output of the economy up to RM2 trillion in the next seven to eight years, from the current RM1.2 trillion.

MARC believes that upskilling human resources is an essential step that organisations should take to remain relevant in the marketplace.

Thus, it proposes for more incentives to be provided to enhance human capital skills to cope with the new era of Industry 4.0 — including larger funds for training related to big data, cloud computing, the Inter- net of Things and cyber security.

It said the government should also be providing tax incentives to encourage local manufacturers to adapt to Industry 4.0, as only 30% of them have begun investing in it.

Additionally, MARC said the government will likely look into other revenue sources to ensure its fiscal consolidation efforts continue in the years to come as the price of oil remains uncertain.

The recent proposal to amend the GST Act 2014 is aimed, among others, to incorporate a permanent establishment clause that would enable the tax authority to include foreign digital companies in the GST bracket.

“Going forward, MARC also feels that other tax measures such as capital gains on short-term financial transactions would bring additional revenue without significantly affecting market sentiment.

“Such a measure would prevent excessive short-term speculations in the financial market,” it added.