Efforts to boost the role of the private sector in Brunei Darussalam are set to be stepped up with the government’s new budget, rolled out on April 1, that includes tax reductions and incentives aimed at supporting business development.
The budget for 2012-13 will see state expenditure for the coming year increased from $4.61bn to $4.68bn as part of the government’s drive to expand private sector participation in an economy dominated by the state-run energy industry.
A key measure in the budget is a reduction from 22% to 20% in the country’s corporate income tax rate, which the government hopes will boost growth and raise employment levels by encouraging firms to reinvest funds in their business.
In addition, $795,000 has been allocated for setting up two organisations aimed at streamlining bureaucratic procedures and further enhancing the Sultanate’s business environment. A state agency is to be established to promote the ease of doing business in the country, while a business facilitation centre will work to cut red tape and support the establishment and development of businesses.
The budget will also see a scheme introduced granting companies a tax credit of up to 50% on the basic salary of Bruneian employees earning a monthly salary of $2385 or less. The incentive can be applied to the wages of staff employed from January 1, 2012 and is effective for a 36-month period.
The government has also made additional funding available for vocational training in a bid to encourage the development of Bruneian nationals in the workplace. A tax deduction scheme will allow companies to benefit from enrolling local employees earning basic salaries of up to $1590 per month on courses or training programmes at accredited institutions.
Other measures that came into effect on April 1 include a move by the government to reduce import excises on a range of equipment. The rates for bringing machinery and industrial equipment using electricity will be cut from 20% to 5%, while similar reductions will also be introduced on the importation of heavy machinery.
Presenting the budget to the Legislative Council on March 7, Yang Berhormat Pehin Orang Kaya Laila Setia Dato Seri Setia Hj Abd Rahman Hj Ibrahim, the second finance minister at the prime minister’s office, said the decision to increase the proportion of the budget earmarked for human resource development and capacity building would be instrumental in driving growth in the private sector.
He acknowledged that it would take time for businesses to assume a greater role in Brunei Darussalam’s economic expansion but also voiced his confidence that the non-oil sector would eventually become the country’s engine of growth. The growth rate could not be reached overnight, the minister said, but most important was that the government continued to stimulate an economic environment conducive for the private sector’s expansion and provide assistance for small and medium-sized enterprises (SMEs) in the form of financial and non-financial facilities.
Observers will be keen to see whether businesses move to adopt the incentives in the budget since promising take-up levels could signal that the private sector is beginning to close the gap on the state-run energy industry.
Estimated at 87.8%, earnings from oil and gas are still expected to make up the lion’s share of government revenues this fiscal year, with the private sector forecast to contribute the remaining 12.2%. Energy’s contribution to GDP looks set to be around 65% for the year, meaning the non-oil and gas sector will make up just an estimated 35%.
Yang Berhormat Hj Zulkipli Hj Abd Hamid, a member of the Legislative Council, said the new measures in the budget, together with others already enacted, were enabling the government to develop an integrated approach that would strengthen the private sector in both the short and long term.
He added that initiatives aimed at bolstering human resources, such as entrepreneurial programmes in technical and vocational institutions and the assistance scheme for pilot projects and overseas expansion, would give SMEs greater opportunities to grow. “The private parties should grab the opportunities (...) provided by the government and (...) fully utilise the initiatives and schemes,” he said.
The new budget puts in place a solid platform that should help drive forward the expansion of non-oil business. The rate of growth, however, will be determined in part by the extent to which businesses decide to build on the foundations that the budget has laid for them.