CHAPTER 6

TERTIARY SECTOR
OVERVIEW OF CHAPTER 6
6. Tertiary Sector
6.1 Public Sector
6.1.1 Background And Trend Of Government Budget
6.1.2 Public Finance Reform
6.2 Private Sector
6.2.1 Tourism Sector
(Contribution & Importance And Strategies & Activities)
6.2.2 Banking And Finance
(Contribution/ Importance And The Malaysian Financial Sector)
PUBLIC SECTOR
INTRODUCTION
➢ Services can be defined as intangible, non-transferable economic goods as distinct
from physical commodities.
➢ There are two types of service provider: The Government and Private Sector.

Intermediate Services Final Services

• transport • electricity
• storage and communication • gas and water
• finance • wholesale and retail trade
• insurance • hotels and restaurants
• real estate • government services and
• business services other services.

Table 1: Sub-sector of Tertiary sector

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 Public sector Private sector

➢ The part of an economy which is not

➢ The Malaysian Public Sector was controlled or owned by the
previously known as the Malaysian government
Civil Service (MSC).
➢ Objective of private sector is to
➢ It is divided into three tiers of maximize profit
government, are Federal
Government, State Government and ➢ Examples of private company: Nestle,
Local Government. Bonia, Astro, AirAsia, IOI, Gamuda.
➢ Tourism and banking industries are
two private industries in services
sector that contribute to GDP.
 Background and Trend of
Government Budget
➢ Government budget - it is a forecast by a government
of its expenditures and revenues for a specific period
of time (usually a year, known as a financial or fiscal
year),
Types of
Government
Budget

Balanced Surplus Deficit

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Background and Trend of Government Budget
Types of Budget Explanation

Budget Deficit 1. Government’s total revenue < total expenditure

2. The government will used this budget when the economy is
having the problem of recession or deflation.
3. A decrease in tax will make individuals have more money in
their hands and able to spend more.

Budget Surplus 1. Government’s total revenue > total expenditure

2. The surplus budget will be adopted by the government to
overcome the problem of inflation or economy boom.

Balanced Budget 1. Government’s total revenue = total expenditure

2. The government will adopt this type of budget when it does
not want to change the level of economic activities. In other
words, the economy is nearly or reached at full
employment.

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1993-1997 surplus budget
Background and Trend of Government Budget
Graph 1: Federal Government Financial Position 2010-2018
(RM million)
Revenue Operating Expenditure Net Development Expenditure Overall Deficit/Surplus
300000

250000

200000

150000

100000

50000

0
2010 2011 2012 2013 2014 2015 2016 2017 2018
-50000

-100000

Source: Economic Report, Ministry of Finance,

Malaysia 2010-2018 10
Background and Trend of Government Budget
Explanation of Federal Government Financial Position

Government • GR – from tax revenue and non-tax revenue.

Revenue • Data shows it has reached RM 239,860 mil in 2018 vs RM
159,653 mil in 2010.
Government • GOE – for purpose of running government department. i.e.
Operating emolument, subsidy, grant, pension and gratuities
Expenditure • It’s standing at RM 234,250 mil in 2018 vs. RM 151,633 mil in
2010.
Government • GDE – for purpose of economic, social development. i.e. build
Development school, hospital
Expenditure • It’s standing at RM 45,400 mil vs. RM51,296 mil in 2010.
Overall • GR – GOE – GDE. Positive value represents surplus and
Surplus/Deficit negative represents deficit.
• Malaysia has recorded deficit for last decade. It’s standing at -
RM 39,790 mil in 2018 vs. - RM43,276 mil in 2010. It shows an
improvement.
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 PUBLIC FINANCE REFORM
➢ The government has embarked on the Public Finance Reform Initiatives under the Fiscal
Transformation Programme to strengthen the government’s fiscal position.

➢ It is targeted at strengthening the Government’s finance to ensure stable and sustainable of public
funds

➢ Initiatives including:
I. Enhancing tax administration and compliance
II. Expenditure rationalization and optimization
III. Improving fiscal policy institution
IV. Strengthening budget management and control

[Link]
reform/

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 List of Initiatives under Public Finance Reform Programme (2011)
A. Improve Tax 1. Widen Field Audit and Investigation 5. Audit-based control on exporters and importers of
Compliance and Coverage liquor and cigarette
Administration 2. Widening the Tax Base 6. Free Commercial Zone
3. Improving Efficiency in Tax 7. Enhanced Customs’ enforcement/audit
Submission and Tax Collection
4. Revise depreciation rate of gazetted
value of imported used cars
B. 8. ‘Step-down’ (From Full to Partial) 10. Review Single Deduction, Further Deduction, Double
Rationalisation Exemption for Shipping Income Deduction
of Corporate Tax 9. Review incentives in Promotion of 11. Step-down’ of Reinvestment Allowances
Incentives Investments Act 1986

C. Expenditure 12. Increase cess for rubber replanting 14. Optimise asset utilisation (for public funded
Control 13. Cost effective funding mechanism universities)
(for public funded universities) 15. Reduce Govt. travelling expenses by 15%

D. Transparent 16. Widening E-bidding scope - 19. Eliminate Incompetent Suppliers/Service Providers
Procurement reducing threshold value from RM200k 20. Capacity Building (Certified training course for
to RM50k procurement officers)
17. procurement of good & services 21. Value Management (VM)
18. Enforce Procurement Plan

E. Other 21. Broad-Based Tax (GST)

Initiatives 22. Accrual Accounting 13
IMPROVE TAX COMPLIANCE AND
ADMINISTRATION
▪ This programme aims at improving the administration of tax. Tax compliance refers
to the degree to which a taxpayer complies with the tax rules. There is an issue when
not all the business owner register their business. Hence, it is difficult for the
government to trace the potential taxpayer. There are some people who refuse to
disclose their true income as to avoid paying tax. Thus, this reform can help in
increasing the efficiency in collecting and managing the tax.
1. Widen Field Audit and Investigation Coverage
2. Widening the Tax Base (amount of assets or income that can be taxed)
3. Improving Efficiency in Tax Submission and Tax Collection
4. Revise depreciation rate of gazetted value of imported used cars
5. Audit-based control on exporters and importers of liquor and cigarette
6. Free Commercial Zone
[Link]
%20at%2022%20July%202014).pdf
7. Enhanced Customs’ enforcement/audit
RATIONALISATION OF CORPORATE
TAX INCENTIVES
▪ To boost the economy, and encourage business, the government had introduced
and implement so many initiatives such as tax exemption and investment
allowances. However, some initiatives do not turned out as expected. Those
incentives lead to less competitive and waste of government revenue.
8. ‘Step-down’ (From Full to Partial) Exemption for Shipping Income
9. Review incentives in Promotion of Investments Act 1986
10. Review Single Deduction, Further Deduction, Double Deduction (export)
11. Step-down’ of Reinvestment Allowances
EXPENDITURE CONTROL
▪ Government experience a continuous budget deficit and increasing public debt.
Thus, it is important to restructure and control the expenditure to reduce the debt.
▪ Government restructure the expenditure to ensure more targeted people benefited
form the government spending. This also can help in reducing the public debt.
▪ 12. Increase cess for rubber replanting
▪ 13. Cost effective funding mechanism (for public funded universities)
▪ 14. Optimise asset utilisation (for public funded universities)
▪ 15. Reduce Govt. travelling expenses by 15%
TRANSPARENT PROCUREMENT
▪ Public procurement is the purchase by governments and state-owned enterprises
of goods, services and works. It is important to ensure the transparency,
accountability and yield the best value of money through out the procurement
process. Good and high quality process of procurement can maximize the used of
government money and avoid activities such as bribes.
▪ 16. Widening E-bidding scope - reducing threshold value from RM200k to RM50k
▪ 17. procurement of good & services
▪ 18. Enforce Procurement Plan
▪ 19. Eliminate Incompetent Suppliers/Service Providers
▪ 20. Capacity Building (Certified training course for procurement officers)
▪ 21. Value Management (VM)
OTHER INITIATIVES
There 2 new initiatives introduced, namely GST and Accrual accounting.
▪ Goods and services tax (GST)
GST is multi-stage tax system, while SST is single-stage tax system.
To reduce the budget deficit.

▪ Accrual accounting
The difference between cash and accrual accounting lies in the timing of when sales
and purchases are recorded in your accounts.

Cash-basis accounting Accrual accounting

recognizes revenues when cash is revenues and expenses are recorded when
received, and expenses when they are they are earned, regardless of when the
paid money is actually received or paid.
does not recognize account providing a long-term picture of the
receivable or account payable. business
▪ Shipping Income is the amount you charge a customer for shipping in order to ship
that item to your customer.
▪ Shipping Cost is what you actually end up spending in order to ship an item to that
customer.
▪ A tax deduction is a deduction that lowers a person's tax liability by lowering
his taxable income. Deductions are typically expenses that the taxpayer incurs
during the year that can be applied against or subtracted from his gross income in
order to figure out how much tax is owed.
▪ A tax base is a total amount of assets or income that can be taxed by a taxing
authority, usually by the government
▪ Government spending is the expenditure of the government on the development
and administration of the nation. For example subsidies, emolument to public civil
servants
PRIVATE SECTOR
TOURISM
 CONTRIBUTION/ IMPORTANCE OF TOURISM
Contribution to national income.
Tourism expenditure and export and import related goods and services
generates income to economy.

Contribution to government revenue

Revenue is derived from direct contribution such as taxes on income for
tourism, employment and business and levels on tourist

Employment creation
Can generate indirectly through hotel, restaurant, transportation , retail,
food and beverages and souvenir sales. Help low income group through
rural homestay program, eco and agro tourism. 21
CONTRIBUTION/ IMPORTANCE OF TOURISM
Stimulation of infrastructure investment
Tourism can induce the local government to embark on
infrastructure improvement. E.g.: Better roads and highways,
ample supply of electricity and water, better telephone facilities
and excellent public transport network

Contribution to local economy

Some money earned form tourism are through informal
employment such as entertainment, vendors and rickshaw
operators.

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 STRATEGIES AND ACTIVITIES
❖ Brand positioning: i.e. “Malaysia Truly Asia’ to attract foreign tourist. “Cuti-cuti
Malaysia” to attract domestic tourist.
❖ Tourism products & promotions. Promotion: “The Visit Malaysia (1994)”,
“Malaysian Formula 1 Grand Prix”, “Le Tour de Langkawi”, “Shopping Carnival”,
and “Langkawi International Maritime Aerospace (LIMA)”. Products: educational
tourism, eco tourism, agro tourism, sport-related activities
❖ Accessibility: Air link were enhanced by MAS and low-budget AirAsia with new
destinations. Land and sea transportation further boosted the tourism industry.
❖ Ensuring the comfort, safety, and security in tourism: Enhance number of
armed forces personnel i.e. ESSCOM
❖ Strategic alliance and enhancing international cooperation-collaboration with
other institutions and countries i.e. Alibaba, Cardiff City FC, Arabian Travel Market,
global payments technology company VISA etc.
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▪ The Malaysia Smart Tourism 4.0 initiative launched by Tourism Malaysia on 5 April 2018 aims
to take the industry to the next level by taking advantage of opportunities in the digital age.
▪ “Smart Tourism is defined according to the technological capabilities of a particular
destination, attraction or the tourist themselves.
▪ The ultimate aim of smart tourism is to improve resource management efficiency, enhance
tourism experiences, maximise competitiveness, and enhance sustainability through
technological innovation and practices.
▪ National Tourism Policy (NTP) 2020-2030 on 23 December 2020
[Link]
tourism-future-of-tourism-in-malaysia/
PRIVATE SECTOR
BANKING AND FINANCE
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CONTRIBUTION/IMPORTANCE OF BANKING AND
FINANCE
1. Economic growth
- increase in GDP
2. Employment
- create job opportunities
3. Supporter to other industries
–investment in trade, agriculture
- provide financial assistance to other sectors
4. Promote capital formation such as saving
- Financial institutions collect funds from depositors (savers) and provide these
funds to individuals, businesses, or governments in need of capital for various purposes.
5. Implementation of monetary policy
- banks and financial institution implement policy by BNM

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EVOLUTION OF THE MALAYSIAN FINANCIAL
SECTOR
▪ January 1959 – Bank Negara Malaysia (BNM) was officially opened. The bank was set up
as the instrument for the deliberate management of the money and credit situation in
the country.
▪ Objectives of BNM: maintain a strong ringgit, promote financial stability and foster the
growth of a sound financial structure.
▪ July 1962 – July 1980 - Tun Ismail b Mohamed Ali served the bank. He strengthened
domestic banks to match the branches of foreign banks in the country. During 1960s,
BNM focused on building up the financial infrastructure such as development of strong
domestic commercial banks, establishment of new financial market and institutions
including KLSE, discount houses, Lembaga Urusan Tabung Haji, PERNAS, the
Agricultural Bank, the Capital Issues Committee and the Malaysian Industrial
Development Finance.
▪ 1970s – the number of banks was restricted and the capital structure and branch
network of the existing domestic banks were gradually strengthened. The Credit
Guarantee Corporation (CGC) was set up to help financing the SMEs. Post Office
Savings Banks = BSN to mobilise small savings. More financial institution were
established, including merchant bank and development bank, and the KLCE
▪ 1980s – great challenges due to global recession 1985/86. the financial authorities
manipulated savings interest rate to stimulate domestic savings, attract capital
inflow and stimulate private investment. The first Islamic banking system was set
up in 1983 under Bank Islam Malaysia Berhad.
▪ 1990s – the Securities Commission (SC) was established on 1st March 1993,
responsible for the regulation and development of the banking and money market,
such as securities industry, financial futures and options market, unit trust and
property trust schemes. On 3rd January 1994, the Islamic interbank money market
was introduced. In 1994, 14 foreign banks were locally incorporated as the
introduction of BAFIA 1989 (all foreign-owned banks were required to incorporate
with local bank).
▪ After Asian Financial Crisis 97/98 – loan loss provisions charged, (1997;RM6b-
2002;RM19b) was the main contributor to the poor performance in 1998. At the end
of 2002, there was one Central bank, 26 commercial banks, 11 finance companies,
10 merchant banks, 7 discount houses, and 50 offshore banks.
▪ To promote economic recovery, government pursued consolidation policy on
banking system to resolve weaker bank institutions. In 1997, Malaysia was
overbanked, thus lead to inefficient use of resources and duplication of
infrastructure at the same locality.
EVOLUTION OF THE MALAYSIAN FINANCIAL
SECTOR

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Financial Sector Master Plan (2001-2010)
EVOLUTION OF THE MALAYSIAN FINANCIAL SECTOR

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