Malaysia Budget 2021: Key Highlights

On 6 November, Finance Minister, Tengku Zafrul Tengku Abdul Aziz, delivered Malaysia’s 2021 budget, the largest in the country’s history. The minister titled the budget ‘Resilient As One, Together We Triumph’ because of its focus on helping Malaysians recover from the financial consequences of the coronavirus pandemic with measures to stimulate economic growth and investment.

The Malaysian government has valued the budget at RM322.5 billion and expects it to grow the economy by between 6.5% to 7.5% in 2021 after the (estimated) 4.5% contraction in 2020 in the wake of the Covid-19 lockdown measures.

Key highlights of Malaysia’s 2021 budget are as follows:

Employees Provident Fund

Contribution rate: Under the 2021 budget, employee contributions to the Employees Provident Fund (EPF) will be reduced from 11% to 9% for 12 months. The reduced contribution rate is intended to give working Malaysians a greater degree of protection from the financial hardships of the pandemic.

Account withdrawals: From January 2021, employees that have lost their jobs as a result of the Covid-19 crisis will be able to withdraw up to RM500 per month from their EPF accounts, up to a maximum of RM6,000 per year. The measure will be in place for 12 months.

Hiring Incentives

In order to provide 500,000 new jobs, skill development, and retraining opportunities in the wake of the crisis, the 2021 budget will introduce the Employment Generation Guarantee Scheme (JanaKerja), a series of hiring incentives for employers.

Under existing hiring incentives, employers receive a flat monthly rate of RM800 per employee: under the new budget measures, the incentives have been enhanced in the following ways:

• Employers will receive hiring incentives equivalent to 40% of employees’ monthly income for a period of 6 months. The incentives are applicable to employees earning at least RM1,500 per month subject to a maximum incentive of RM 4,000 per month.
• Employers will receive an additional incentive of 20% of monthly income for 6 months for the hiring of physically and mentally disabled employees, terminated employees, and the long-term unemployed.
• Employers in sectors that rely heavily on foreign workers, including the construction and plantation sectors, will receive a 60% monthly salary incentive for hiring local workers. 40% of the incentive will go towards employers while 20% will go directly to the local employees as a wage top-up. The incentive will be available for 6 months per employee.
• Employers that hire elderly employees, ex-convicts, ex-drug addicts, or parolees will receive tax deductions. The deduction for elderly employees will be available until YA 2025.
• RM20 million will be available for prisoners to receive vocational trainers with employers in Malaysia.

Wage Subsidy Programme

The budget will extend the Malaysian government’s Wage Subsidy Programme for 3 months until December 2020 in order to help industries continue to sustain employees into the new year.

The extension will be specifically targeted at the retail and tourism sectors and will involve a monthly RM600 subsidy for employees earning up to RM4,000. The subsidy will also increase in availability: employers will now be able to subsidise up to 500 employees - up from the previous 200 employee limit.

Personal Income Tax

The budget introduces the following personal income tax measures:

• The contribution rate for the RM50,0001 to RM70,000 income tax band is reduced by 1%.
• For taxpayers that have lost their jobs as a result of the coronavirus pandemic, the income tax exemption limit will be increased from RM10,000 to RM20,000 for every full year of an employee’s service. The measure will be in place for the 2020 and 2021 years of assessment.
• Employees with medical expenses for serious illness, including expenses for spouses and children, will have their tax relief increased from RM6,000 to RM8,000.
• Tax relief of up to RM3,000 for Private Retirement Scheme (PRS) contributions is extended to the 2025 year of assessment.

Penjana Kerjaya Training Programme

The Penjana Kerjaya training programme, offered through Malaysia’s Social Security Organisation (SOCSO), is enhanced under the 2021 budget.

• RM2billion has been allocated to Penjana Kerjaya in order to help train 250,000 job-seekers.
• The maximum amount that employers will be able to claim for employees that are hired under Penjana Kerjaya will be raised from RM4,000 to RM7,000 - enabling employees to take part in high-skilled training or professional certification programmes.

For more information on tax and social security in Malaysia, explore activpayroll’s Malaysia Global Insight Guide.

To learn more about Covid-19 support measures for employers and employees, browse our blog and latest news page.