Here’s how Malaysia’s Budget 2018 is embracing digital economy

OVER THE WEEKEND, Malaysians pored over the annual budget which has many construing it as an election budget, though there were several provisions made specifically to address and capitalize on the rise of the digital economy.

The budget — entitled “Prospering an Inclusive Economy, Balancing Between Worldly and Hereafter, For The Wellbeing of the Rakyat, Towards the TN50 Aspiration” — largely has many provisions weighted towards individuals in the lower- and middle-class.

However, the digital economy and small digital enterprises got a big shoutout. Prime Minister Najib Tun Razak announced various provisions to be made in order to help foster the growth of the digital economy through the Malaysia Digital Policy.

“This rakyat-centric (people-centric) Budget outlines initiatives to leverage the opportunities presented by the Fourth Industrial Revolution and the digital economy, underscoring its contribution to the country’s GDP,” Microsoft Malaysia managing editor K. Raman said in a statement.

“Along with the recent announcement of [a] ‘Cloud First’ strategy, and creation of a National Artificial Intelligence (Al) Framework, these are steps in the right direction to bolster the country’s strategic ICT thrust.”

“As businesses in Malaysia look for better and faster ways to leverage on the fourth industrial revolution and transform themselves, modern technologies such as cloud computing have a crucial role to play. We laud the government’s initiatives in this direction that will set the country apart as a key differentiator.”

Broadly speaking, there are three main ways in which the government is making it easier for businesses to shift to the digital economy: talent, incentives and infrastructure.

Infrastructure

Probably aware of the high cost of adopting new technologies, the government has allocated more funds and government resources to help companies begin introducing tech into their operations and business models. For instance, a new one-stop center for research and development of products by enterprises and academics will be opened in Cyberjaya, the appointed seat of Malaysia’s digital economy.

In order to support the growth of the Fourth Industrial Revolution in the country, as much as RM245 million (US$57.8 million) in matched grants would be made available to companies under the Domestic Investment Strategic Fund.

The money will be allocated specifically to upgrade smart manufacturing facilities, meaning that the government is actively pursuing a future as a hub for digital innovation across not only software and hardware as well.

Furthermore, Malaysia will also be continuing its partnership with Chinese authorities to establish the first non-mainland Digital Free Trade Zone (DFTZ). The introduction of the “zone” — which is more conceptual than physical, though there is a center in KL International Airport (KLIA) — is designed to help boost e-commerce operations across the country, by removing taxes and duties on goods traded over the web.

It’s a precedent that could help iron out any complicated issues with regards to how customs will treat certain types of goods, and also encourage enterprises to begin online businesses.

As much as RM83.5 million will be set aside for the construction of the DFTZ in the KLIA area, while the value of imports will rise as much as 60 percent in order to drive up the number of goods brought in.

In their commentary on the budget, iPrice group’s senior vice-president of growth Matteo Sutto said the investment in the DFTZ will likely have a significant impact on the e-commerce segment in the country. He said in a statement that Malaysia’s government is following the trajectory of other Asian success stories, such as Taiwan and Singapore.

He said that the investment in logistics and customs infrastructure for the digital economy is aligned with the National eCommerce Strategic Roadmap, and could really push the development of the economy.

Furthermore, the government has also said that a huge interest for them will be the building up of more ICT capacity in the country. The government will be allocating RM1 billion to improve East Malaysia’s Internet infrastructure, and business access more shoppers in the region. could help more citizens access products online, which is crucial as as much as 75 percent of Internet users shop online.

Comments from Microsoft’s Raman serve as a barometer for how more established technology enterprises feel about the budget’s infrastructure provisions, indicate that overall the allocations are popular as they create “a strong support structure and ecosystem” that businesses need to thrive in.

Incentives

It’s not secret that businesses are constantly on the lookout for the best deals when it comes to deciding where to set up shop. The Malaysian government has implemented several tax schemes that would decrease burdens on technology investments, while also opening up more avenues for startups and small corporations to obtain funding.

The government has said that there would be tax exemptions for funds raised by venture capital companies that will be funnelled into Malaysian startups. According to comments by Sutto, the top 10 e-commerce businesses in Malaysia over the last six years have raised as much as RM14 billion that has been used to develop their online platforms.

“With this, we hope to see further influx of funds for e-commerce startups in Malaysia to make available a greater number of products and services for consumers in the country and across Southeast Asia,” said Sutto.

Furthermore, there are also tax exemptions for spending on automation equipment, and manufacturing and its related service sectors.

Meanwhile, companies that spend on computer software development will be allowed to claim back taxes for the next four years starting from 2018.

“[The] rebate on purchase of ICT equipment and software development will lower the barrier to entry for adoption of digital technology among SMEs and corporates, especially as we continue to advance digital workforce as a national agenda,” said Microsoft’s Raman.

Talent

At the heart of the nation’s policies on the digital economy is a concern with upskilling today’s workforce to be able to cope with the disruptive effects of the Fourth Industrial Revolution. Many researchers, including those from the World Economic Forum (WEF) say that the emergence of increased automation and technologies could result in many job losses. Mitigating that effect is a key theme in the 2018 budget.

The government will be investing as much as RM61.6 billion into various programs that will be targeted at future-proofing future workforces by building up a capacity of ICT skills. The creation of the Technical and Vocational Education Training (TVET) will be targeted at upskilling individuals in preparation for the digital future.

A series of soft loans, training programs and grants — totaling as much as RM200 million — will be introduced by SME Corp of Malaysia.

While many other departments and agencies will be granted money to run training sessions, there is a clear emphasis on developing IT talent. Government employees and students will all be given opportunities to learn more digital skills, which was said by Microsoft to be integral to scale up.

“SMEs account for the majority of business establishments in Malaysia. As the backbone of our economy, it is important that we create an enabling environment, allowing SMEs to harness the transformational opportunities offered by technology and training,” said Raman.

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