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Domestic investments take centre stage

Domestic investments take centre stage

14 Oct 2023

The promotion of domestic investments takes centre stage in Budget 2024, presenting a clear sign that Prime Minister Datuk Seri Anwar Ibrahim and his Cabinet are serious in restructuring the economy.

While analysts may have mixed views on the budget measures, the government’s focus on domestic investments is a well-timed move amid the weak global prospects next year.

A large part of Anwar’s speech – which was longer than recent budget speeches – mentioned tax incentives and other measures for startups, small and medium enterprises (SMEs) as well as the larger industry players.

A tiered-system of tax allowance to promote reinvestments by businesses was announced and Anwar reaffirmed the government’s goal to promote investments into the high growth, high value (HGHV) manufacturing subsectors.

A key highlight is the announcement of a new high-tech industrial hub to be established in Kerian, Perak to enlarge the nation’s electrical and electronics (E&E) ecosystem.

However, it was a huge letdown that the budget speech virtually ignored Malaysia’s already sluggish stock market.

Apart from the incentive related to syariah-compliant securities, Budget 2024 lacked measures to excite investors in Bursa Malaysia.

The fact that the Capital Gains Tax on the disposal of unlisted shares was announced at 10%, instead of a gradual hike, was another disappointment.

To slap a high tax rate on unlisted companies would go against the very intention of the government to promote domestic investments, particularly in bringing in new investors into non-listed firms.In a statement, the Small and Medium Enterprises Association says that the SME stakeholders were not consulted.

As the tax is slated to be implemented from March 1, 2024, the government has time to revisit the details of the tax.

On a whole, despite several concerns, Budget 2024 appears to be positive for the business sector.

TradeView Capital chief executive officer Ng Zhu Hann says Budget 2024 is “very domestic driven”.

“This is the right thing to do. The world economy is expected to slow down in 2024 and Malaysia will have to be driven by domestic factors,” he says.

However, Ng notes that the budget does not mention much about incentives to attract foreign direct investment.

Ng also welcomes the government’s effort to strengthen the venture capital environment through the centralisation of venture capital agencies such as Penjana Kapital and Malaysia Venture Capital Management Bhd under Khazanah Nasional Bhd.

“This will result in better management of resources. The agencies can also strategies better and avoid overlap of approaches unlike before,” he adds.

Commenting on the measures for the capital markets, Ng is positive on the decision to extend the tax exemption to fund management companies that manage Sustainable and Responsible Investment (SRI) funds as well as tax deductions on the cost of issuing SRI sukuk until the assessment year of 2027.

“This ensures policy consistency to promote sustainable financing,” he says.

When asked whether the decision to raise the service tax on brokerage services from 6% to 8%, Ng believes the impact will be marginal.

Geoffrey Williams, an economics professor at the Malaysia University of Science and Technology, is also positive on the measures to assist startups.

However, he says the details about these incentives or measures must be “transparent”.

Anwar announced that government-linked companies and government-linked investment companies will provide funds of up to RM1.5bil to encourage startups including bumiputra SME entrepreneurs to venture into HGHV fields such as the digital economy, space technology and E&E.

Tax incentives for individual investors investing in startups through the equity crowdfunding platform will be extended to individual investors through limited liability partnership nominee companies and extended until Dec 31, 2026.

In addition, tax incentives for angel investors have been extended until end-2026 to encourage capital in technology related startups.

Anwar also said that next year, the total value of loans and financing guarantees available for the benefit of micro, small and medium enterprises (MSMEs) amounts to up to RM44bil.

However, Williams was sceptical about the financing facilities for MSMEs.

“The RM44bil in finance and loans from micro-enterprises may not be useful because very small businesses resist taking on loans.

“I do not expect these schemes to be effective.

“They continue to look like schemes to channel funds to middlemen rather than to micro-enterprises,” he says.

Elaborating further, Williams says that the main problem with the financial assistance to MSMEs is the fact that they are often narrowed to certain types of assistance such as for green projects or digitalisation of operations.

“These programmes have been available for a very long time and are not attractive.

“This is why the take up has been low and lessons have not been learned,” he says.

On another note, Williams looks forward to the reforms of the development financial institutions.

In his speech, Anwar said that Bank Pembangunan Malaysia Bhd, SME Bank and Exim Bank would be merged.

“We need more details on this.

“Reforms should focus on improving their performance, merging them to remove replications and restrategising to produce better investment returns within the business investment ecosystem,” he added.

Meanwhile, Kuala Lumpur and Selangor Indian Chamber of Commerce and Industry president Nivas Ragavan expects Budget 2024’s measures to boost foreign and domestic direct investments will create job opportunities as well as empower local MSMEs along the supply chain.

However, he highlights that the success of such measures will depend on various factors, including how well they are implemented, their alignment with the country’s economic goals, and the specific needs of industries and start-ups.

“It’s essential to consider expert analyses and economic indicators to gauge the success of these measures accurately.

“The establishment of an Investment and Coordination Action Committee (JTPPP) as mentioned in the budget would promote adequate measures to attract investments,” he says.

It is noteworthy that the JTPPP will report to the National Investment Council chaired by the prime minister himself.

Anwar has also said the responsibilities of the Investment, Trade and Industry Ministry and the Malaysian Investment Development Authority are no longer limited to only the approval of investment incentives, but are expanded to facilitate issues related to investment beginning from the application until the investment is realised.

With Budget 2024 finally unveiled, all eyes will be on how fast the measures can be rolled out effectively.

Source: The Star