Malaysia: 2016 budget sets out a series of spending programmes aimed at supporting ICT services and bolstering R&D.

The new national budget signals an acceleration of Malaysia’s digital drive, with both ICT research and improvment(R&D) and broadband provision awarded significant funding increases.

While higher investment in the digital economy spells good news for the sector, and small and medium-sized enterprises (SMEs) in particular, some stakeholders would like to see additional done to boost industry sales.

Bigger, better broadband

Presented to Parliament on October 23, the 2016 budget sets out a series of spending programmes aimed at supporting ICT services and bolstering R&D.

The budget – which marks the initial year of the government’s 11th five-year plan (11MP) – earmarks RM35m ($8.2m) worth of funding for the Malaysian World Innovation and Creativity Centre, meant to reinforce its role as a regional business hub, while the Malaysian Innovation Agency is set to receive a RM100m ($23.6m) injection to help support R&D projects.

A total of RM1.2bn ($282.6m) will be channelled into developing broadband services in rural areas, seen as a pivotal part of Malaysia’s drive to boost economic opportunities and equality of services across the country. The funds, which are controlled by the Malaysian Communications and Multimedia Commission, will be spent on upgrading the national fibre-optic backbone inclunding the undersea cable system.

Greater investment in broadband infrastructure should as well strengthen Malaysia’s efforts to improve its international standing for average broadband speed, which the government plans to quadruple to 20 Mbps.

A recent study by Akamai Technologies, a US-based cloud services provider, found that Malaysia had slipped to 70th on a world inventory comparing broadband speeds, trailing a lot of regional peers, inclunding Singapore, Vietnam and Thailand. This came despite a 17% year-on-year increase in average internet speed in the second quarter of 2015, according to local media reports.

With the country as well lagging behind in terms of affordability, the government has targeted cost reduction as part of its 11MP, with the goal of extending broadband infrastructure to 95% of populated areas by 2020.

Hoseok Kim, CEO of 11street, one of the major e-commerce sites in Malaysia, said the decision to extend the reach of broadband in rural areas would increase ICT utilisation and raise the profile of online commerce.

“These allocations are certainly a step in the right direction to positively enhance, support and grow the Malaysian e-commerce market,” he told local media in late October.

Support for SMEs

SMEs could be part the biggest beneficiaries of the 2016 budget’s digital focus. SMEs are a key part of Malaysia’s economy, accounting for additional than half of employment, nearly 20% of exports and roughly one-third of GDP, according to a recent study.

A new RM200m ($47.1m) fund will offer soft loans at 4% interest rates to firms looking to invest in ICT services or make related upgrades. The fund will be managed by SME Bank, established as a development financial institution for small businesses in 2005.

This comes alongside other tech-related incentives for Malaysian SMEs, inclunding a double tax deduction for R&D project expenditures of up to RM50,000 ($11,800) per year from 2016-18.

Cheah Kok Hoong, chairman of the National ICT Association of Malaysia (PIKOM), believes the budget measures will allow SMEs to make the majority of technological advancements.

“The SME Transformation Technology Fund will encourage SMEs to embrace ICT and move up the technological chain,” he told media in late October.

GST a sticking point

Despite the ICT focus of the new budget, the Goods and Services Tax (GST) remains a contentious issue for a lot of tech companies – some of which pushed, without success, for the levy on ICT products and services to be reduced or waived under the new budget.

The broad-based 6% GST, which came into force in April, is expected to generate some RM39bn ($9.2bn) in government revenue next year, according to budget projections.

While the government views the tax as a key replacement for weaker energy and commodity revenues, a lot of in the sector argue that it is driving down request for ICT products.

According to PIKOM, request for computers and related goods has fallen by 30% since the new levy came into result, compounded by the nearly 30% year-to-date depreciation of the ringgit against the US dollar.

PIKOM had lobbied for a series of measures to boost the commercial side of ICT, inclunding the removal of the GST from all related products and services. Only products classed as teaching tools for skills and vocational training are currently exempt from the tax.

To spur ICT uptake and bolster industry sales figures, PIKOM has as well called for a higher gain tax deduction for the purchase of desktops and laptops for personal use, which it believes should be increased from RM3000 ($700) to RM4000 ($950).