Budget 2015's focus on R&D, a step in boosting Malaysia’s ICT sector

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Major investments in Malaysia’s 2015 budget are set to strengthen the ICT sector by funding infrastructure expansion and providing support for both research and development (R&D) and private sector training. Budget 2015's emphasis on stimulating research and development (R&D) in the Information and Communications Technology sector and growing the creative industry is being welcomed by local experts. As the Asean Economic Community looms large, world class connectivity infrastructure will be one of the most essential recipes of success in the very competitive regional free trade zone. Today, Malaysia is ahead of the curve when it comes to digital inclusion, affordability and the general standard of connectivity among similarly developed nations. The reason for this is the government and its agencies’ continued work on the Digital Malaysia initiative, a comprehensive plan to further the country into a digital economy by 2020.

A lot of the agenda in the Budget this time was less ICT centric than it was in 2014. As for the creation of the Research Incentive Scheme for Enterprises (RISE), the injection of RM10mil into the R&D sector will attract more players into the market. Most multinational companies such as Intel and AMD had already long associated the Malaysian market as being one which offered them a competitive advantage in R&D. RISE would also play a crucial role in pushing Malaysia upwards in the high technology goods value chain. It’s been high on policymakers’ agenda because Bank Negara Malaysia had also foresaw we needed to replace Malaysia’s current dependence on non-value added technology goods in order to become a high income nation.

While the ICT industry has generally welcomed the new budget unveiled by Prime Minister Najib Razak on October 10, there are some concerns over the impact of a forthcoming goods and services tax (GST) and whether the budget measures will be enough to meet the government’s economic targets by 2020. The budget allocated RM2.7bn ($824.7m) for the construction of 1000 telecommunications towers and the laying of undersea cables over the next three years to boost connectivity and coverage. The prime minister also said in his budget address that the expansion of high-speed broadband in areas of high economic impact, in particular in Kuala Lumpur and other large urban centres, would continue. The planned investments are likely to help increase internet penetration rates, with some estimates putting coverage at 75% of households as of the end of 2015, up from the 67.7% recorded in the first quarter of 2014.

In addition to the infrastructure spending, the budget included RM200 million (US$61 million) to support the development of digital content to back Malaysia’s creative industries, focusing on areas such as animation, film design and cultural heritage. A digital content industry fund, with capital of RM100 million (US$30.5 million), is expected to be established under the Malaysian Communications and Multimedia Commission to promote the sector. A further RM80 million (US$24.4 million) has been dedicated to promote the use of new technology, automation and innovation by small and medium-size enterprises (SMEs). The funds will be distributed as soft loans through Malaysian Industrial Development Finance, with additional funds and tax write offs made available for training staff. Further, the reintroduction of the Services Export Fund (SEF) totalling RM300 million will encourage  more ICT  SMEs to gain market share in key global centres. This augurs well with MDeC’s efforts to accelerate the export contribution of Malaysia’s higher margin ICT Service sub-sector.

Concerns remain, however, over a six per cent GST levy for ICT products and services that is set to come into effect on April 1, 2015. According to the National ICT Association of Malaysia (Pikom), about 75 per cent of Malaysian businesses prefer the forthcoming GST tax to the existing sales and services tax model, however, as of April 2014, less than 25 per cent of organisations had sent their ICT staff to GST training, meaning more financial and training support will likely be necessary before companies are able to adhere to the new levy. The advent of the GST could see a jump in software sales as companies rush to acquire the programmes necessary to allow them to process information required under the levy’s regulations. Many organisations still hold on to archaic software that will not be able to adapt to GST requirements. Upgrades to the accounting software to produce the required files requires a substantial time and this cannot be done at the last minute as extensive preparation are required.