The Malaysia Budget 2024, tabled by Prime Minister Datuk Seri Anwar Ibrahim, outlines the country’s largest-ever financial blueprint, amounting to RM393.8 billion.

Titled “Ekonomi MADANI: Memperkasa Rakyat,” this budget promises to prioritise and serve the ‘rakyat’ (people) with policies that tie into the nation’s broader economic strategies, such as the National Energy Transition Roadmap, New Industrial Master Plan 2030, and the Mid-Term Review of the Twelfth Malaysia Plan.

For the fintech industry, this budget heralds significant opportunities and challenges. This piece will take a closer look at the critical elements of this budget that impact Malaysia’s fintech sector. Let’s delve into the key highlights.

The introduction of the Capital Gains Tax

The introduction of the Capital Gains Tax, specifically on the net profit from the disposal of local unlisted shares, will undoubtedly impact investment dynamics.

While the rate of 10 percent from 1 March 2024 might appear steep at first glance, it’s essential to delve into the nuances.

The proposed exemptions, particularly those concerning approved IPOs and venture capital ventures, could offer significant fiscal respite and influence investment patterns and decisions in fintech.

The consolidation of financial institutions

The budget also reveals a strategy to streamline Development Financial Institutions (DFIs) by merging prominent bodies like Bank Pembangunan Malaysia Berhad with SME Bank and Exim Bank.

Alongside, the centralisation of venture capital agencies, such as Penjana Kapital and MAVCAP under Khazanah Nasional Berhad, is envisioned.

These consolidations are bound to shape the fintech environment in the upcoming years, offering more consolidated and efficient financial services.

Tax incentives and funding

The Malaysian government is putting a lot of effort into supporting different sectors through its budget. Firstly, they have set aside RM100 million for MyCIF for three years. This money is meant to improve things like food security, health, education, and agriculture-related businesses by developing waqf assets.

Besides, the government is also encouraging people to invest in new companies by offering them tax benefits. For example, those who invest in startups through the Equity Crowdfunding platform will get tax incentives.

This benefit has also been extended to people investing through certain partnership companies until the end of 2026. There are also special tax incentives for angel investors who put their money in technology startups, which will continue until December 2026. These steps show the government’s plan to support the growth of new businesses and technologies in the country.

Fortifying Malaysia’s stature in Islamic finance

Malaysia’s 2024 budget brings forth significant provisions to escalate the growth of Islamic financial activities within the Labuan International Business and Financial Centre (IBFC).

Entities engaging in Islamic financial transactions, including digital banking, bourses, and token issuances, are set to enjoy a full income tax exemption from 2024 to 2028. This move aligns with the government’s ambition to enhance Malaysia’s appeal as a nexus for Shariah-compliant financial pursuits.

Labuan IBFC operates under the Labuan Islamic financial services and securities Act. The Labuan FSA has notably released a Guidance Note on the Issuance of Green, Social and Sustainability Sukuk. Plus, the Shariah Supervisory Council of Labuan FSA has set compliance criteria for Labuan Islamic digital offerings.

The IDAC’s blockchain capabilities have introduced securities token offerings (STO) for global investors. Further, the new Labuan Exchange streamlines trading of digital sukuk through blockchain technology.

Since licensing its first digital finance entity in 2017, Labuan IBFC now houses over 90 digital financial service providers, ranging from digital asset platforms to insurtechs.

Yet, it’s essential to note the revised stance on Shariah-compliant fund management services. The previously 100 percent income tax exemption is pared down to 60 percent on statutory income. However, to balance this revision, the exemption period sees an additional four-year extension.

Sustainable and Responsible Investment (SRI) Funds and SRI Sukuk Grant also see many extensions and expansions in their tax exemption policies. Such moves reinforce Malaysia’s dedication to promoting responsible investing, which is becoming imperative in today’s globally connected financial world.

Igniting the startup flame

Startups represent the innovative frontier of any industry, fintech included. In a forward-looking move, the National Digital Economy and Industrial Revolution Council is pumping RM28 million into the MYStartup platform.

This centralised platform amalgamates resources and support, funnelling RM200 million from various funding streams into a unified nexus for startups.

Parallelly, Government-Linked Companies (GLCs) are on track to invest up to RM1.5 billion, inviting startups, SMEs, and the Bumiputera community to explore high growth and high value (HGHV) avenues, particularly the digital economy.

In response to the Malaysia Budget 2024 announcement, Wilson Beh, President of the Fintech Association of Malaysia (FAOM), said,

“Following the recent Budget 2024 announcement, we are pleased to note the inclusion of fiscal support for startups. This step highlights a promising landscape with increased investment opportunities, especially for the fintech industry.”

Counteracting Scams

The role of the National Scam Response Centre (NSRC) has been nothing short of pivotal in Malaysia’s fight against financial scams.

Their achievement of freezing up to RM60 million from an overwhelming 49,000 calls underscores the issue’s magnitude. Recognising NSRC’s paramount importance, the government has wisely doubled its allocation.

Parallelly, the evolution of the National Fraud Centre (NFC), spearheaded by Bank Negara Malaysia and its associates in the financial sector, stands out as a beacon of hope. With its cutting-edge automated fund tracking capability, the NFC promises a revolution in scam detection, swift fund freezing, and efficient fund retrieval mechanisms.

The contemplation of revisions to the criminal procedural court to tighten the noose around scam syndicates showcases Malaysia’s commitment to protecting its citizens. By expediting the return of funds to scam victims, the government is sending out a clear message: financial security is a priority.

Bolstering National Cybersecurity infrastructure

In a strong commitment to safeguarding its digital assets and citizens’ data privacy, the Malaysian government has allocated RM60 million in its 2024 budget to strengthen national cybersecurity through CyberSecurity Malaysia (CSM).

This funding will support the development of a 5G Cyber Security Testing Framework and enhance local expertise in 5G technology, aligning with CSM’s mission to bolster technical capabilities, conduct research, and implement cybersecurity initiatives.

This significant allocation reflects the government’s determination to protect critical infrastructure and valuable information from potential cyber threats. It serves as a strategic move to fortify Malaysia’s digital defences and ensure the security of the nation’s digital economy.

The 2024 Malaysian Budget signals Malaysia’s intent to remain a dynamic player in the global economic theatre. By intricately weaving support mechanisms for SME digitalisation, sustainable investments, Islamic finance, and startups, the nation is crafting a holistic tapestry where fintech firms can thrive regardless of size or stage.

It’s an exciting time for fintech in Malaysia, with the nation’s policies and priorities reflecting a balance of innovation, sustainability, and inclusivity.